Is this contribution definitely determinable?

[Richard Anderson]

In a new comparability money purchase plan would the following contribution be difinately determinable?

Class 1: 3.5%, however if non-discrimination will not be passed at 3.5%, the percentage for Class 1 will be increased up to the point where non-discrimination testing will pass.

Class 2: 25%

[Tom Poje]

Richard

I dont think that will fly, especially as a money purchase. that doesnt sound definitely determinible to me.

obviously in 2002 the same concept could be run as a profit sharing, though the 5% gateway would be required.

[Mike Preston]

Well, back in the days that PS plans were subject to the definitely determinable standard, that language you suggested, without modification, would not have satisfied the rules.

However, if you add language to your plan that pins down the exact meaning of the non-discrimination testing, including whether or not you use the ABT or permitted disparity, etc, then the language should work.

Last I checked, which was quite a few years ago, the language needed was at least 2 pages worth. Haven't used it, though, in any plan since the definitely determinable issue went away with respect to profit sharing plans. Essentially, you are locked into whatever method you choose to describe once you put it into the plan document. By definition, this is less flexible than leaving it out, so it isn't done very often any more, as far as I know.

You can do the same thing you want to do with an -11g amendment. There are two issues to keep in mind if you do. First, the amount contributed pursuant to an -11g amendment is deductible in the year of the -11g amendment, unless it also qualified as a 412©(8) amendment (within 2 and 1/2 months after the end of the year). Second, you "shouldn't" use -11g amendments as a planned way of passing the non-discrimination tests because there is a provision that states that a pattern of -11g amendments shouldn't be used. Very subjective, of course, so caution is advised.

[AndyH]

Mike, your comment about deductability in particular caught my attention. Are you saying that additional contributions resulting from a corrective amendment under 11(g) are not deductible for the prior year generally?

In my case this might arise more frequently within the context of a cross tested profit sharing plan. If a sponsor of such a plan amends and contributes within the normal deduction timeframe (8 1/2 months if an extension is filed), then I think what you're saying is that such amounts are not deductible until the following year. Is that correct? I do see language that might support that interpretation.

And, your comments about repeated amendments make sense, but the regulation seems to be referencing brfs only. Do you interpret it more broadly than brfs?

Thanks for the info.

[Mike Preston]

I admit to potentially being too cautious in my reading of the reg in question. I am always bothered by a plan of attack that incorporates -11g, though. I would much prefer to design a plan so that -11g amendments are never planned, although sometimes useful.

I don't think there is anything on point that deals with the deduction issue in a negative sense. So, I'm not aware of any cases where the IRS has gone to court and won on the issue. Nonetheless, I think this is the standard response one gets from the IRS at conferences.