Question about uniform allocation formula

[Guest lawdawg]

A profit sharing plan allocates profit sharing contributions based on the following formula: participant's compensation for the plan year divided by the toal compensation for all eligible participants for that plan year.

Is this a uniform allocation formula within the meaning of 1.401(a)(4)-2(B)(2)? I'm confused! :confused:

[MWeddell]

Yes, that's a safe harbor allocation so that no 401(a)(4) testing is required. Every participant gets the same percentage of plan year contributed to the plan.

Check though that the compensation definition used to allocate profit-sharing contributions satisfies 414(s) before concluding that no general testing is required.

[jaemmons]

I agree with MWeddell. The allocation formula meets the safe-harbor requirements of Reg 1.401(a)(4)-2(B)(2) as long as every eligible participant receives an allocation based upon IRC 415©(3) compensation. Once you start disregarding certain amounts of compensation (i.e.-overtime, fringe benefits, bonuses, commissions) you must prove that the exclusion satisfies

401(a)(4) and your plan loses its "safe harbor" status under the previously mentioned Treas.Reg.

This is important to analyze this because for an employer who wishes to have their document submitted for GUST, you may need to submit a Schedule Q since you probably won't receive automatic reliance on the definition of comp.