Deemed CODA

[Guest mparker2028]

New client

Partnership - Profit Sharing Plan (no 401k) with 2 Partners and the rest are NHCE.

Comparibility formula - Group A Partners Group B all others

One partner wants to "elect out" or not receive his allocation of contribution.

Issues - deemed CODA? Failure to follow plan document; failure to satisfy 401k

What are the IRS ramificiations of this situation?

[Tom Poje]

you have to follow terms of document. since he is a partner, he must receive a pro rata share provided to the group of partners.

poorly designed plan. they should have a class for partner 1, and a class for partner 2. that would avoid the problem

[Guest mparker2028]

you have to follow terms of document. since he is a partner, he must receive a pro rata share provided to the group of partners.

poorly designed plan. they should have a class for partner 1, and a class for partner 2. that would avoid the problem

Wait it gets better. I just found an amendment to their document, changing to 3 groups, Group A Dr. X, Group B Dr. Y and Group C all others.

Is this bad? Seems bad. How do you fix something like this?

I don't want anymore new clients. I've got 1099's to do.

[AndyH]

WDIK needs to add this to his greatest hits archive collection.

Harwood and Willie must be upset.

This brings back memories of Blinky's 5500 filing order thread.

[Tom Poje]

well, the IRS has already said you could name people as classes in a cross tested plan, so that in itself is generally not a problem. If the ink on the amendment you found hasn't quite yet dried, then that is a problem...er be careful not to smudge the ink.

suppose instead the company had set up 3 plans

one for owner A

one for owner B

and one for all other ees.

now, would that be considered a CODA if owner B received nothing?

I have seen arguments either way on this issue regarding a possible CODA, the advice I have heard simply said make sure the amounts allocated to the different classes is done be a board of resolutions. in other words, for better or worse, it looks like it is possible to accomplish what you have in a single plan