401(k) plan and profit sharing

[Guest browntrout]

Kind of a basic question, but are there any employer obligations that go along with having a discretionary profit sharing component in a 401k plan? All of my research suggests that the answer is no (after all, discretionary means discretionary), but Treasury Reg. 1.401-1(b)(2) states that a profit sharing plan will be considered temporary if substantial and recurring contributions are not made.

Is this reg designed to address standalone profit sharing plans as opposed to profit sharing within a 401k plan?

Best regards,

Bob

[MWeddell]

Welcome to the message boards, Bob.

The employee deferrals made to the 401(k) plan count as employer contributions under the Internal Revenue Code. Since they are made every pay period, there is no problem at all with having substantial and recurring employer contributions to your plan.

I could only think of one possible problem to having the plan document permit profit-sharing contributions and have the employer never use that feature. I thought it might mess up the exemption from the top-heavy rule that applies to 401(k) plans with the safe harbor plan design, but Rev. Ruling 2004-13 (I believe -- I didn't look it up just now) indicates that one loses the top-heavy exemption only if there is an allocation of employer contributions or forfeitures. I can't think of any other reason why having the profit-sharing language in the plan document but never actually funded would cause harm.

[Bird]

I agree, no problem. We usually include optional PS language even if the company never intends to use it.

[Guest browntrout]

Thanks for the repsonses...makes perfect sense!

Best regards,

Bob