Profit-Sharing Contribution

[imchipbrown]

I have a client who said the company would make a $50,000 contribution to its PS Plan. Benefit statements and 5500 C/R were prepared. Now, it's possible the company can't/won't come up with the money.

I don't know if the 1120 and/or 5500 have been filed yet. I'm fairly sure the benefit statements have been distributed.

Has the company irrevocably commited to the contribution?

[Guest Dook]

Assuming that the profit sharing formula in the document is fully discretionary, there should have been a corporate resolution (or similar for unincorporated businesses) prepared and executed, declaring the contribution to be made.

If this is the case, the resolution is a legal document which I would think creates a "contract" between the company and the plan. If it came to a bankruptcy situation I don't know where it would fall in the pecking order of obligations. Such a contract should be enforceable by the plan Trustee. However in a small company this is likely to be the owner, so the partiipants would have to take the issue to the DOL.

In lieu of a formal declaration of the contribution, there is probably just a communication nightmare with the participants, and a hard lesson learned. The 1120 and the 5500 can both be amended to take out the contribution.

[Dave Baker]

Interesting! Must be some case law out there.

Even if the resolution is a "contract" between the corp and the plan, I would think it's not enforceable by the plan unless the plan "detrimentally relies" on the corp's resolution ... basically it looks to me like a "gift" by the corporation that could be canceled any time before the money is handed over to the plan's trustee.