Contributions deposited and not allocated

[Guest mmc]

A doctor in a profit sharing plan terminated prior to year end. The plan requires end of year employment to receive an allocation. The sponsor had already deposited $44,500 for this doctor.

The $44,500 is within the deductible limits and some of us argue that since it was deposited prior to year end, it must be allocated to the eligible participants. The plan sponsor does not want to allocate the $44,500 and some administrators have taken the position that the $44,500 does not have to be allocated.

Also, how is it reported on the 5500?

[QDROphile]

What plan terms provide for not allocating for a year the contribution made for that year?

[Bird]

I'm in the camp that believes that if it was deposited, it must be allocated. Some questions about the allocation come to mind though: when you say it was deposited "for" this doctor, what does that mean? Was it deposited to an individual account, or was there a contemporaneous memorandum saying it was for this doctor? And does the plan (not) have a last day provision saying you have to be employed on the last day of the year in order to get a contribution?

[jpod]

My understanding of the Q is that everyone "agrees" that the Dr. is not entitled to the allocation, but the plan sponsor wants to know whether it can take the money back from the plan. This doesn't come close to being a "mistake of fact" situation, in my opinion, in which case the answer would be "No."

[Bird]

I'm sorry, I missed the part in the original post about the end of year requirement. Yes, I believe it must be allocated. We just had a similar situation, an "over" deposit not due to termination but just because they threw too much money in, and we made them allocate it. It's a difficult conversation...