Doctors want to contribute different percentages to the plan

[katieinny]

We already know that their elective deferrals can vary, but when it comes to the profit sharing contribution their expectations are all over the map. We're considering the following arrangment, although we realize that it's probably more work than it's worth. Extra work aside, I'm wondering if it will work for plan purposes.

The doctors have set up separate S-Corps for themselves. Then they set up a management entity for the staff and other overhead expenses. The management entity has a 401(k) plan and the S-Corp doctors will be participating employers in that plan. Then the doctors will decide on a profit sharing contribution, let's say 10% of comp. Then, each doctor will adjust his/her own W-2 compensation so that he/she will get 10% of a lot, or 10% of a little. Is there anything about this type of arrangement that the IRS would find fault with?

[J Simmons]

We already know that their elective deferrals can vary, but when it comes to the profit sharing contribution their expectations are all over the map. We're considering the following arrangment, although we realize that it's probably more work than it's worth. Extra work aside, I'm wondering if it will work for plan purposes.

The doctors have set up separate S-Corps for themselves. Then they set up a management entity for the staff and other overhead expenses. The management entity has a 401(k) plan and the S-Corp doctors will be participating employers in that plan. Then the doctors will decide on a profit sharing contribution, let's say 10% of comp. Then, each doctor will adjust his/her own W-2 compensation so that he/she will get 10% of a lot, or 10% of a little. Is there anything about this type of arrangement that the IRS would find fault with?

S-Corp compensation to shareholder-EEs must be reasonable, in light of the services that they perform. It's not just something that may be manipulated, willy-nilly, in order to allow for differences in the amount that 10% profit sharing accruals would be for the different shareholder-EEs. If the IRS comes knockin', you're going to have to defend the W-2 to each shareholder-EE as being within the 'reasonable range' for the services provided by that doctor.

Why not make the plan a cross-tested one so that there can be variances?

[Bird]

...and sooner or later, one of the docs will want a $0 contribution, which means $0 pay. Just use a document where each doc's contribution is whatever you want it to be (to be accurate, not necessarily cross-tested).

[david rigby]

.... willy-nilly...

Thank you for using the technical term.

[J Simmons]

.... willy-nilly...

Thank you for using the technical term.

Sorry for using technical jargon--here's what Merriam-Webster Online defines it as (I was using the second listed meaning):

willy-nilly

Main Entry:wil·ly–nil·ly Pronunciation: \ˌwi-lē-ˈni-lē\ Function:adverb or adjective Etymology:alteration of will I nill I or will ye nill ye or will he nill heDate:1608 1 : by compulsion : without choice 2 : in a haphazard or spontaneous manner