Tax Treatment of Participant's Reimbursment of Employer Contribution

[Floridaattorney]

What is tax treatment of following situation:

Employer maintains profit sharing plan. Participant is a fully vested participant whose plan account receives annual allocation.

Participant and Employer have agreed that participant will reimburse employer every year for the amount of contribution that Employer makes to plan on participant's behalf.

Would this be unreimbursed business expense for participant?

Would this offset income that participant would othewise report?

Would this create some type of 'basis' for employee in profit sharing account?

[GBurns]

Did you know that BenefitsLink has a Humor Forum..?

Does this joke include the employer taking a deduction for the profit sharing contribution ?

What does the employer record the reimbursement as ... Extortion Revenue ??

[K2retire]

On the chance that this was a serious inquiry, I would suggest that you consult your local bar directory for someone who specializes in ERISA. What you propose is not permitted, and your client needs more counsel than this message board can provide.

[jpod]

I am not going to propose a solution on a message board, but why must this inquiry be written off out of hand? The parties have made a business deal that the employee's total compensation will be X, and he can't have X plus a profit sharing contribution. While it is obviously not as simple an undertaking as the employer likely assumes, there very well may be a way to skin this cat, with some creativity. Experienced ERISA counsel should be sought for this purpose.

[GBurns]

I do not see how this could be regarded as "the employee's total compensation will be X, and he can't have X plus a profit sharing contribution.". The employee is either eligible for participation and the allocation or he/she is not.

What was posited could not be a "business deal". It has nothing to do with business.

What was posited was a reversion of a valid pension plan allocation/contribution. Are you saying that such reversion is permitted ?

What was posited also appears to be a condition of continued employment and not a condition of employment. Hence coercion etc.

If it was a condition of gaining emplyment, it would have been simple to opt out of participation at the outset and before eligibility and allocation/contribution etc.

[jpod]

GBurns: The original poster said that the parties have agreed to this, and I am taking him/her at his/her word. It's not even clear that the contribution has been made yet, and even if it has there could be a reduction in future salary to offset the profit sharing allocation, coupled with an amendment to exclude this employee by name from the plan going forward (assuming no 410b issues). Why are you so up in arms about this?

[GBurns]

I am only "up in arms" because I see usually sensible people apparently condoning the exploitation of employees.

The posited scenario (including the claim of employee agreement) is one that I see regulary since 1967. I have yet to see 1 that was legitimate, moral or legal.

Even not considering the current job climate, I doubt that any employee would not be intimidated into "agreeing' with their employee so as to be able to keep their job. So I seriously question that the employee agreed.

What is the difference between this scenario and one in which the employee giives back the 1/2 of OT time& 1/2 ?

[jpod]

GBurns: I am not getting the same impression from the original post. There may be facts not stated, such as that the employee was never interested in the profit sharing plan in the first place, and negotiated for and was offered more cash in exchange for being excluded from the profit sharing plan (except that maybe the employer realized too late that the plan had to be amended to exclude him). I can conjure up several scenarios that are just as plausible as your scenario, if not more so.

[GBurns]

I do not see " such as that the employee was never interested in the profit sharing plan in the first place,", since the employee is fully vested according to the OP.

If it was the employer's intention to exclude this employee, then there would have been no need for reimbursement for allocation/contribution since none would have been made or contemplated. The same would apply if there had been negotiatiion for a raise, no allocation/contribution after the raise.

Let's see if more facts emerge.

[movedon]

Have to go with G-man on this one - sounds like it's either coerced or a CODA.

[Guest Sieve]

George --

I don't disagree with your anlaysis, but you are assuming here that there is neither equal bargaining power between the parties nor due consideration being given by an educated and fully cognizant employee represented by a lawyer. For example, it certainly is not unusual in a physician group for a non-shareholder to be promised, in some form or another, $XXX,XXX annually (perhaps even in an employment contract), with the PSP contribution (or other fringes, like conferences & journals) not considered an addition to that dollar amount. Normally, that means that the non-shareholder simply receives a smaller year-end bonus to take into account the PS contribution--but it most certainly will not mean that the employee will literally pay back the employer (since the pay back could generate 2 deductions for the employer for the same $$--compensation paid (but returned) and PS contribution made).

Nevertheless, this conceivably could be on the up & up, with the problem lying not in the general concept but in its awkward execution.

[masteff]

As an alternative to the evil employer scenario... My first thought in reading the OP is it's a 2 person shop and the EE wants to put aside more retirement than 402(g) allows. The owner says, well, I could put more for myself in but I'd have to give you PS also, but if you'll pay me back for it, then we both win.

So what about Lippy's comment above about CODA? I'll give you some of my cash since you put an equal amount into the trust for me. And OP says there was an agreement between the parties prior to when the contribution was made to the trust. (Or is that what everyone thinks is pattently obvious and therefore left unstated?)