Limited Liability Company - Each participant in own group

[Guest jvanheyde]

What is the latest position of the IRS on whether an LLC can place each member of the LLC in his or her allocation group for purposes of the cross test. I've heard concerns that this is tantamont to a deemed cash or deferred arrangement. Do most people recommend broader groups for an LLC or LP?

[J Simmons]

That chain gets rattled every once in a while by an IRS official speaking off the cuff. However, I'm aware of nothing official so far.

Rather, LRM #94 includes the following sentence: "The allowable number of allocation rates for eligible HCEs is equal to the number of eligible HCEs, limited to 25." Of course, a plan could have HCEs and no owner-employees, so not entirely dispositive though somewhat persuasive.

The real rub of the concern is that each LLC member would be able to make his own decision for more than the 402g limited amount for 401k deferrals. If the LLC membership as a whole (or better yet, its 'managers') makes the decisions, then the concern should be allayed. However, proving who actually made the decision might be difficult. At a minimum, a resolution signed by all the LLC members (or managers) that sets forth the contributions to be made for each individual's group would be helpful.