PS plan excesses

[cpc0506]

Background: Client had a SEP. Changed to a Profit Sharing Plan effective 8/1/2005. Has not filed a Form 5500 as they were not aware that they needed to do so.

We have been hired to complete all the delinquent Form 5500's. Intend to go through the DFVC Program.

BUT, we have discovered that for 4 of the 6 plan years that are delinquent, the profit sharing contributon was not capped for the HCE's. Client was giving 10% (in all years affected) of compensation (no limit) to all employees. FYI, the profit sharing allocation is discretionary amount - pro-rata/

Since the amount was deducted on the Corporate Tax Returns for all those years, it is my suggestion that the client determine a "new percentage of comp" for profit sharing in the years affected that would generate the same taxable amount and re-allocate the profit sharing contribution (taking money FROM the HCE's and giving TO the NHCEs).

Any thoughts? Any concerns with this method of correction? Are lost earnings required as well?

Thanks

[Jim Chad]

That looks like a pretty good suggestion to me. I think it fits well with Rev Proc. 2008-50. Good luck.

[cpc0506]

That looks like a pretty good suggestion to me. I think it fits well with Rev Proc. 2008-50. Good luck.

How do I handle lost earnings?

[BG5150]

I usually just use the lost earnings calculator for VFCP.

http://askebsa.dol.gov/VFCPCalculator/WebCalculator.aspx

[Guest ghal]

It would seem to me that you would remove the earnings from the HCE's accounts that are attributable to the excess and move that to the non-hce's along with the applicable contribution. You would have to redo the turst accounting for each year and calculate the interest earned. I don't think the dol calculator would fit this scenario.

Grant

CPC, ERPA