Deduction Limit in Multiple Employer Plan with new Adopter

[RPP2001]

In a PEO multiple employer plan, we have an Adopter that started participation effective 11/1/12. They would like to make a profit sharing contribution for 2012. So, everyone's date of participation is 11/1/12.

How is the 25% deduction limit applied? I know it will apply only the Adopter (not unrelated employers), however, do you count compensation earned prior to 11/1/12? If it matters, this Adopter has had its payroll done by the PEO throughout all of 2012.

Thank you for any feedback!

[Flyboyjohn]

The 25% deduction limit is on eligible compensation, are you counting 2 months or 12 months of compensation in allocating the profit sharing?

[RPP2001]

We are counting 2 months of compensation because the PEO plan excludes compensation earned prior to plan entry. All employees entered on 11/1/12 when the Adoption Agreement become effective.

[Flyboyjohn]

I think you're stuck with 25% of last 2 months compensation

Perhaps the PEO plan document should be amended to avoid this unfortunate result for new adopters going forward