"Minimum Funding Waiver" for Profit Sharing Plan with Fixed Contribution?

[Übernerd]

Calendar-year profit sharing plan has a fixed contribution (equal to a percentage of participant compensation); i.e., it's funded exactly like a money purchase pension plan. Sponsor has been hit by the downturn and can't, for the time being, make the '08 contribution. If the plan were a money purchase pension plan, Sponsor could apply for a minimum funding waiver (or, if that were unavailable, permission to implement a retroactive cutback). Obviously, profit sharing plans are exempt from the 412 funding rules, and accordingly the waiver and retroactive cutback relief wouldn't seem to apply, but the plan's situation is essentially identical to a money purchase plan whose sponsor is in financial difficulty. Does anyone have experience with the IRS granting analogous relief in these circumstances? Any suggestions appreciated.

[david rigby]

Why? Does the plan define the ER contribution as discretionary?

[Übernerd]

Why? Does the plan define the ER contribution as discretionary?

No, it's not discretionary, it's fixed (just as if it were a money purchase pension plan).

[SheilaD]

I'm afraid I have no answer -- just an additional question. I have a non-profit customer who has a money purchase plan with a tiered formula. Some of their funding is public and they have always said that they must have a fixed formula in the plan in order to do their budget. If they put a line item that says discretionary Profit Sharing it will be cut in the funding talks. Last year, due to the late reimbursement by the state of New York they failed to meet minimum funding. The IRS is waiving most of the penalty, given the situation, but now a question has come up.

Can they in fact have a Profit sharing plan with a fixed formula? If so, what are the penalties for failure to contribute timely? I wasn't even sure they could have the fixed formula so hadn't researched this yet. Do you have a determination letter on your PSP with a fixed formula?

Thanks for your thoughts.

[Belgarath]

A profit sharing plan can have a fixed formula. Many documents contain that option, although it is rarely (in my experience) used.

I don't see how the minimum funding standard can apply, under the plain language of 412(e)(2)(A). If the plan is using an IRS approved PS prototype or VS plan which contains a fixed option, then minimum funding standards shouldn't apply.

[SheilaD]

A profit sharing plan can have a fixed formula. Many documents contain that option, although it is rarely (in my experience) used.

I don't see how the minimum funding standard can apply, under the plain language of 412(e)(2)(A). If the plan is using an IRS approved PS prototype or VS plan which contains a fixed option, then minimum funding standards shouldn't apply.

It seems logical that 412 minimum funding would not apply -- but failure to make that contribution could be construed as failing to follow the plan document? I have a feeling that I will not find an absolute answer on this - but it might relieve my client of penalties to switch to the profit sharing with a fixed formula as long as EVENTUALLY they make their contribution. Their cash flow is so dependent upon the state and federal government sending in their portion of the budget timely.

Thank you.