Search the Community

The central issue is whether or not a family member can be excluded entirely from the plan (0 deferral, 0 SH 0 PS)?

So I have a plan sponsor that wants to draft their profit sharing allocation formula to allow them to decide on an annual basis if they’re going to make either a pro-rata based on comp contribution, a contribution using permitted disparity (two tiered), or both. Seems to me, with all this discretion this “formula” with all its flexibility would violate the definitely determinable allocation formula requirements. In my mind, I’ve always thought discretion meant a sponsor could determine the amount they will contribute each year, and a participant should be able to determine from the formula how that amount would be allocated. That said, you can put each participant in their own allocation group, so does “definitely determinable” really mean anything anymore? Since an allocation using any of the possibilities this sponsor is contemplating (pro-rata, integrated, or both) would meet the permitted disparity rules, seems like they would still have a safe harbor allocation formula. Agree? They also are expecting us to jam this formula onto our VS document…a long describe line! What prevents a sponsor from selecting all the allocation options in a VS document and saying they’ll choose one at the end of each plan year? Maybe I just don’t like stuff that is out of the box, but this doesn’t smell right to me. Anyone care to share their thoughts?