Profit Sharing Allocation by profit center

[Guest ANNEBV]

Client owns 100% of 2 companies, Company A & Company B. Currently has a single Profit Sharing Plan that covers both companies due to minimum coverage requirements. Company A is profitable. Company B is not. Client would like to only give PS to Company A. As long as minimum coverage requirements are met, a PS allocation could be made to each company separately, could it not (more to A, less to b)? Does general test come into play? Also, client is considering a 401(k) plan for Company B and keeping the PS plan for Company A only. Again, minimum coverage is main issue, but am looking for opinions/thoughts from others with similar situations (hopefully)!

[Ervin Barham]

You can have a plan allocate to different profit centers, but it will have to be tested under the 401(a)(4) rules for non-discrimination in addition to passing coverage. You may have to amend the document to an individually designed plan, although some prototypes (PPD)will allow you to do this.

As to your second question, you will have to pass coverage with respect to the 401(k) & match features. Since you state that the companies are in 1 plan already because of coverage, this isn't going to help.