IRC 404 Deduction limit

[jkharvey]

A profit sharing plan has several adopting employers. Most of the employers are physicians where the physician is the only employee. All of the other employees are employees of another adopting employer. It seems to me that each adopting employer (Physician) has a deduction limit of 15% of eligible employee compensation. If the only employee is the physician, the limit would be 15% of $160,000. The Plan, however, has an integrated allocation formula that allocates an amount > 15% of $160,000 to each physician. Hasn't the physician's 404 limit been exceeded?

[Bill Berke]

You are right, each separate business has its own 15% limit regarding its own participating employee. The integrated excess would come from the business that does not employ the physicians because, it is presumed, that the toal contribution for the other employees would be less than the 15% limit. Sort of like legally "robbing Peter to pay Paul", but this is the process in a controlled or affiliated group situation. Inasmuch as this appears to be an affiliated group situation, I have presumed one plan for all companies. Don't confuse deduction limits with allocation rules. They are separate legal issues with allocations looked at on a plan wide scale and the deductions looked at per each contributing employer co-sponsor.

[This message has been edited by Bill Berke (edited 06-15-2000).]

[This message has been edited by Bill Berke (edited 06-15-2000).]

[jkharvey]

Thanks for your help. I'm still confused on one point, however. Each physician will receive an allocation that is greater than his/her 404 deductible limit. The physician's corporation will only contribute the 15% of $160,000. The corporation that employees the NHCEs will actually then contribute an amount that is greater than the total amount allocated to its employees to make up the amount due to the physicians. Am I correct?