LLC member "opting out" of PSP

[SMB]

LLC (taxed as a partnership) sponsors a Profit Sharing Plan. Plan allows participants to "opt out" on an annual basis.

Other than possibly being considered a deemed CODA if such an "opt out" affects compensation, are there any other issues or considerations - especially with regard to a LLC member opting out?

I seem to recall that with a 401(k) Plan , a partner's opting out had to be irrevocable, but this is a Profit Sharing Plan.

Thanks!

[jaemmons]

Under Reg 1.401(k)-1(a)(6)(ii), specifically states that a CODA is created when "an arrangement directly or indirectly permits individual partners to vary the amount of contributions made on their behalf." Since the underlying members of this LLC are partners, they are subject to the applicability of this Reg section.

Even if non-partners are allowed to "opt-out" from year to year, this may be looked upon as an indirect CODA to the partner since the non-partners cost would increase thier K-1 allocation. For the partners, the irrevocable waiver would not be deemed a CODA if it is executed prior to the partner ever being eligible for ANY plan the LLC has or had sponsored. (See Reg 1.401(k)-1(a)(6)(ii)©).

The downside is the you now would have a CODA with a plan document that does not contain CODA language which is now an operational issue, since the plan is not being operated the way it is written. The good thing is that they are sponsoring a PS plan so adding the CODA language would not be a problem. However, if you had a pension plan (DB, TBP or MPP) you may have a disqualification issue.