401(k)/Profit Sharing Contributions

[Randy Watson]

We have a 401(k)/PS plan. Although matching contributions are made quite often, PS contributions have never been made. Is this plan in violation of 1.401-1(b)(2) (substantial and recurring contribution requirement)?

[Guest dbvail]

Fun question. My approach is to consider any '401k' plan as a subset of PS. Therefore, contributions are in fact being made and this would satisfy the requirement. Now I realise each contribution type can be considered a 'plan' for various testing regimines, but that doesn't defeat the basic premise that this plan is recieving regular contributions.

Aside: as a practical matter, what would the IRS or DOL's position be regarding correction? Disqualification of a bona fide plan that serves the needs of employees is unlikely.

I guess I'd not worry too much about it. But then I'll wait for more informed responses.

Good luck.

[Archimage]

No, it is not a violation.

[Randy Watson]

It's not a violation because the 401(k) and the PS are merely components of the same plan?

[Archimage]

401(k) deferrals and matching contributions are considered employer contributions.

[Randy Watson]

401(k) deferrals and matching contributions are considered employer contributions.

Very nice. Thank you.

[BG5150]

We have a 401(k)/PS plan. Although matching contributions are made quite often, PS contributions have never been made. Is this plan in violation of 1.401-1(b)(2) (substantial and recurring contribution requirement)?

Is the profit sharing contribution at the employer's discretion? If it is, then there is no violation.

The match might even be discretionary.

[Randy Watson]

It is discretionary, but don't believe that matters under1.401-1b)(2).