Compensation: 401(a)(17) and 415

[imchipbrown]

A potential new client contacted me. His accountant has informed him that, because of amendments to Section 415, his contribution allocations starting 2008 have changed. I received an allocation report for 2007 and the proposed 2008 report.

Without getting too specific, it's an Integrated MP Plan, 8% base plus 13.4% over TWB of $97,500. Here are some 2007 numbers the accountant provided:

Gross Comp to TWB Excess Comp Base Cont Excess Cont Total

Doc 345,000 97,500 247,500 7,800 33,165 40,965

Other EE 15,024 15,024 0 1,202 0 1,202

Straight Profit-Sharing was used to get Doc to $45,000

I have two problems with this.

1) I would have started the calc with Gross at $225,000. Excess Comp would be $127,500. So Base = 7,800 (same), Excess is 17,085, Total = 24,885.

2) Why 5.4% of TWB? I'm used to 5.7% of TWB, or 5.4% of (80% TWB +$1)

The accountant believes that prior to 2008, the above calc is OK. I think 401(a)(17) always controlled, regardless that 415 now refers to 401(a)(17) comp. He would apply the 2008 comp limit of $230,000 - 102,000 TWB as the Excess Comp.

I don't want to get into a pi**ing contest. Maybe I'm missing something?

[Mike Preston]

Just what your potential new client wants to do about his not qualified plan.

[imchipbrown]

Yeah, I haven't seen his Plan Document, but I've never seen an approved (I assume) prototype that doesn't tie compensation, for allocation purposes, to 401(a)(17).

So, disqualified for not following the terms of the Plan, you think?

[Mike Preston]

Or disqualified for having a plan that ignores the a17 limit.