Last Day Allocation Condition Beyond Plan Year

[Gruegen]

I have a client with a calendar plan year and a 5/31 corporate (fiscal) year. They would like to condition receipt of the profit sharing contribution on being employed on the 5/31 following the end of the plan year. Please note that compensation would be measured during the calendar plan year, it is just that that employee would have to be employed on 5/31 to receive the profit sharing contribution.

Do you think this is permissible to have allocation conditions that are beyond the plan year? I could not find any guidance on this issue. Thanks.

[rcline46]

Of course you won't find any guidance. All allocation conditions/dates are plan year based and so must be within the plan year. You won't find anything speaking about outside the plan year because there is no need to address the situation.

[austin3515]

I'm not sure I agree. You can have the allocation conditions be whatever you want. The only statutory requirement is that the plan passes coverage. Unless there is something that I am not aware of, which is definitely possible. But in the absence of some sort of citation that is directly on point, I would say my answer is correct (so hard to answer questions based on what has never been answered in regs!).

[jpod]

Doesn't the "definite allocation formula" requirement state, or at least imply, that you need to know by the close of the py how contributions will be allocated?

[austin3515]

http://www.dol.gov/dol/allcfr/Title_29/Par...2530.200b-1.htm

"Such a plan, therefore, may provide that an individual who has been a participant in the plan, but who has separated from service before the date on which the employer's contributions to the plan or forfeitures are allocated among participant's accounts or before the last day of the vesting computation period, does not share in the allocation of such contributions or forfeitures even though the individual is credited with 1000 or more hours of service for the applicable vesting computation period. "

Look at that - there was a site specifically to the contrary. Allocation conditions must be determined before last day of the Plan Year.

[SavingsRUS]

http://www.dol.gov/dol/allcfr/Title_29/Par...2530.200b-1.htm

"Such a plan, therefore, may provide that an individual who has been a participant in the plan, but who has separated from service before the date on which the employer's contributions to the plan or forfeitures are allocated among participant's accounts or before the last day of the vesting computation period, does not share in the allocation of such contributions or forfeitures even though the individual is credited with 1000 or more hours of service for the applicable vesting computation period. "

Look at that - there was a site specifically to the contrary. Allocation conditions must be determined before last day of the Plan Year.

I am not entirely sure that the DOL regulation requires allocation conditions to be determined before the last day of the plan year. The regulation refers only to a separation from service before the date on which the employer's contributions are allocated to the plan. Why couldn't a plan allocate the match on the March 15th of the year following the close of the calendar year plan year (12/31 PYE) to those participants who were employed on March 15th? Provided 410(b), 401(m), and 401(a)(4) are satisfied, is there any authority or regulation that specifically states the allocation must take place within or by the last day of the plan year?