Profit Sharing integrated formula

[Guest Wolves1962]

I am tryign to allocate 10,000 to five employees. If I use the limits for 2006 with 613,821 as my total compensation, I have 2 employees not receiving any money at all. What am I doing wrong?

Here is the comp of all five employees.

137,500.00

220,000.00

200,000.00

36,833.42

19,487.82

[WDIK]

What am I doing wrong?

Could you be more specific about your allocation process and the methodology required by plan document language?

[Guest Wolves1962]

Profit Sharing allocation is based on using 10,000 to allocate amung the 5 participants.

I am using the Integration Percent which equals 5.7%. I am also using the Social Security Wage Base of 94,200.00.

The Plan Allocates money using Permitted Disparity.

Any help would be greatly appreciated...

[Tom Poje]

my initial guess is the plan is top heavy anyway, so you would end up comp to comp for allocation purposes since the contribution is so small

[Bird]

What am I doing wrong?

You're probably allocating to excess comp first, and since the contribution is relatively small (1.6% of total comp) there's nothing left for base comp.

The rate of allocation on excess comp can't exceed 2x the base rate, but plan language and/or top-heavy status may dictate that all employees get the same rate.

[Leopurrd]

as stated before, double check your plan document. Assuming the plan is not top heavy (and that your doc calls for the formula below), the easiest way to allocate the 10,000 is as follows:

1. Find your eligible base comp for each person, as you stated in your original document.

2. Find the comp over the taxable wage base for each person

3. Add these two numbers together for each person, and sum the totals as well.

4. Use the revised "Base" as calculated in 3 above(base + ss excess) as your new comp to allocate the 10,000.

Using the formula above basically gives you the same % allocated on wages above the TWB as well as your base wages.

Of course, Tom has a great point about top heavy. Be sure you are covering this first!

[Guest Wolves1962]

Thanks to all of you. I am going to see if last year he had a straight 3% since the plan was indeed Top HEavy. However what if the contributionis in additon to his "other Contribution" The plan is also Safe HArbor and he wants to allocate money in addition to his safe harbor contribution.

Can I still use the integrated even though the contribution amount is small? I know he is trying to give himself the largest contribution possible being the owner and he thinks the integrated is best.

[Guest Pensions in Paradise]

Is the owner older than the non-highly compensated employees? If so, have you considered a cross-tested formula? Also, are the other highly compensated employees also key employees? If they are, they can be excluded from all SH/PS contributions in the future. If they are not key, they only need to receive the TH contribution.

[Tom Poje]

things are getting a bit muddled. if plan is top heavy then

1. if contribution is only 10,000 which, based on comp would be less then 3% to all so it does not have to be bumped up. top heavy is 3% or less depending on what key ees get.

however, you now indicated the plan is safe harbor. that imples deferrals involved, which means a key person probably deferred at least 3%, so top heavy would be 3%.

2. therefore, assuming the plan provides the 3% SHNEC all have received top heavy. however

1.401(k)-3(h)(2) is clear that "To the extent they are needed to satisfy the safe harbor contribution....shnecs may NOT be taken into account under any plan for purposes of 401(l).

so I would read that as saying I can't simply take the additional 10,000 and use it as an integrated piece.

of course you have to follow the terms of the document. if the plan is integrated I would expect something like 1.2% plus 1.2% above the TWB or however the allocation works out.

[WDIK]

Profit Sharing allocation is based on using 10,000 to allocate amung the 5 participants.

I am using the Integration Percent which equals 5.7%. I am also using the Social Security Wage Base of 94,200.00. The Plan Allocates money using Permitted Disparity.

The plan is also Safe HArbor and he wants to allocate money in addition to his safe harbor contribution.

things are getting a bit muddled.

Another great example of why these boards will never replace paid, professional services.