timing of profit sharing contribution for related employers

[k man]

client is a law firm where each partner has his own PA which also adopts the plan. in the past (before we were hired) the sponsor allowed each PA to fund their PS contributions during the year but the corp funded the contribution for the law firm at the end of the year. the IRS is auditing the plan and they are requesting support for this position... to me it sounds discrminatory as well but if anyone thinks it is ok and knows of some legal basis, please post. thanks.

[Guest mjb]

Q1. Is this a multiple employer other plan in which each PA is a separate employers who adopts the same plan or is it a plan of a controlled/affiliated group of employers?

Q2 Are the assets aggegated for 414(l)?

Q3 what does the plan provide about when contributions can be made?

Q4 what provision of the IRC or regs does the IRS think this falls under?

[Guest Pensions in Paradise]

The timing of deposits for HCE versus NHCE is a benefits, rights, and features issue.

From the 2001 ASPA meeting:

52. If Employer pre-funds its crosstested profit sharing plan that allocates using defined groups, does the employer need to do a letter of instruction to the trustee for every deposit? If so, does the timing of the allocations need to be non-discriminatory as well?

IRS: When the money goes in the plan, the plan sponsor much designate to which group the dollars belong. In addition, timing of contribution (all money for HCEs goes in at beginning of year and NHCE money goes in after year is over) can be a benefits, rights, and features (BRF) issue.

Also see 1.401(a)(4)-4

[Guest mjb]

PP: I asked the question to find out what the agent thinks the issue is, not you. For obvious reasons ASPA meeting minutes are not a primary source that can be relied upon as precedent. One of the questions that you overlook is who is the plan sponsor in this arrangement.

Also the BRF regs apply only to "other rights and features available to any employee under the plan" which would exclude the timing of contributions made by separate employers/plan sponsors under IRC 404 (since the time of contributions are not a right available to an employee). See Reg. 1.401(a)-4(a). The last bold face comment in the ASPA meeting appears to misstate the problem as the timing of contributions to the plan in favor of HCEs instead of the timing of the allocation of plan assets to favor HCEs after contributions are made to the plan which would be a BRF problem in a single employer plan (since contributions become assets once the plan acquires possession).

[k man]

Q1. Is this a multiple employer other plan in which each PA is a separate employers who adopts the same plan or is it a plan of a controlled/affiliated group of employers?

Q2 Are the assets aggegated for 414(l)?

Q3 what does the plan provide about when contributions can be made?

Q4 what provision of the IRC or regs does the IRS think this falls under?

A1. it a plan of a controlled/affiliated group of employers.

A2. i believe so

A3. not sure...

A4.. very good point. i think we should ask them.

[Guest Pensions in Paradise]

mjb, so now that we know this is a controlled group/affiliated service group, do you feel there is a problem?

[Guest mjb]

Dont you think that is dependent on what IRC provision the IRS thinks applies to this plan?

[Guest Pensions in Paradise]

Well, IMHO 1.401(a)(4)-4 prohibits what they are doing. Can you provide a cite which supports what they are doing?

[WDIK]

Dont you think that is dependent on what IRC provision the IRS thinks applies to this plan?

I've heard it said that a good lawyer knows the answer before the question is asked. In this case, I would want my representative to have a good idea of the provision the IRS thinks applies before asking, or in the alternative, have a good idea of a provision that supports my position.