allocation of PS contribution for HCE's (timing)

[k man]

is it permissable to allocate PS contribution to HCE's during the PY and NHCE's at the end of the PY? Among other things, it seems discriminatory to me.

[ccassetty]

I wouldn't do it. It's giving the HCEs the avantage of earnings throughout the year that the NHCEs aren't getting. If they have a last day requirement, funding it throughout the year opens up a whole other can of worms if an HCE should leave during the year. Finally, funding it throughout the year for the HCEs takes away the "discretionary" ability of the employer at the end of the year to determine a contribution level based on company performance. If the employer does have a situation where they can't afford to make the total required contribution to the NHCEs at the end of the year based on what has already been contributed to the HCEs, then what are they going to do?

[R. Butler]

I've researched this before, but for some reason I can't find my notes. The situation I researced involved a partnership. In addition to the nondiscrimination issue, we concluded that if the plan was audited there was a strong possibility that the contributions would be classified as deferrals.

If I can remember where I filed those notes I'll try to post something that backs up that conclusion.

[k man]

if they are classified as deferrals that would be a deemed coda correct?

[david rigby]

How about a violation of benefits, rights, and features?

[R. Butler]

if they are classified as deferrals that would be a deemed coda correct?

Thats correct, but I still can't remember why we thought that.

Even without that issue you have discrimiantion problems as the other posts have mentioned. See 1.401(a)(4)-1©(8).

"...(8) Allocation of earnings. Notwithstanding any other provision in

Secs. 1.401(a)(4)-1 through 1.401(a)(4)-13, a defined contribution plan

does not satisfy paragraph (b)(2) of this section if the manner in which

income, expenses, gains, or losses are allocated to accounts under the

plan discriminates in favor of HCEs or former HCEs..."

[R. Butler]

I've researched this before, but for some reason I can't find my notes. The situation I researced involved a partnership. In addition to the nondiscrimination issue, we concluded that if the plan was audited there was a strong possibility that the contributions would be classified as deferrals.

I found those notes. We were concerned about the Deemed CODA, not because of the pre-funding, but in addition to the pre-funding one of the partners wasn't wanting to make a full contribution each year. That would be a Deemed CODA under IRS Announcement 94-101 §441.3.