401(a)(4) testing for quarterly PS allocation

[Guest TM3069]

I have a client that allocates profit sharing contributions each quarter. The formula is pro rata as a uniform % of compensation earned each quarter.

Employer contributions allocated solely on the basis of entire plan year compensation are deemed to be nondiscriminatory. However, because the allocations are based on quarterly compensation is 401(a)(4) nondiscrimination testing necessary?

[Guest Sieve]

If each quarter's contribution is discretionary, then annual 401(a)(4) testing is necessary. If each quarter's contribuition always is the same percentage of compensation, then you're ok.

[austin3515]

I believe what the OP is forgetting to mention is that you have to be employed on the last day of the quarter to get the contribution for that quarter (pure speculation!). I believe this does end up requiring a4 testing (unless there is some specific exemption related to interim allocation dates, which may very well exist). REason being, an individual is benefitting under the plan if they got the contribution in Q1 and then termed some time in q2, which mewans the amount of the contribution must be nondiscriminatory, and the term is receiving a lesser percentage of pay than the HCE who was there all year. In fact it might even be 1/4th percentage which could present some gateway problems if cross-testing is necessary.

But certainly if it's a different contribtion each quarter, that would also require a4 testing.