Coordination of NCP allocation & 415 limit

[Guest Jane Freeman]

I have a question regarding the allocation of NCP contributions where 2 owners (#1 & 2) want to receive $40,000 and are in the same group but do not have the same salary.

Example: Owner 1 - $200,000/Owner 2 - $100,000/Owner 3 - $75,000/Owner 4 - $75,000

In order for owner 2 to receive $40,000 a contribution of 40% of salary would need to be made to the plan. This would cause Owner 1 to exceed the 415 limit. Can owner 1 just be capped at $40,000 or does the excess he would have received if there were no 415 limit have to be reallocated to the remaining participants in the group?

My thinking is they need to determine the total dollar amount that would be required to get Owners 1 & 2 to $40,000 after the reallocation of any excess of Owner 1.

The plan uses a Corbel Volume Submitter which indicates that any amount in excess of the 415 limit "may" be allocated to other participants. My concern is that it does not indicate that the excess "must" be allocated.

Any thoughts would be appreciated.

[AndyH]

Good question. In my office we refer to this question as whether or not to use the "chop method".

Sal Tripodi did an outline with suggested cross testing language a couple of years ago and it touches upon this issue but simply says that this is a matter than the document should address. Guess Cobel's doesn't. Neither does ours. Maybe the answer is "What do you want the answer to be?".

Not a good answer but I don't have a better one.