Contributions for Controlled Groups

[Guest Thornton]

Corp A (23 employees) and Corp B (8 employees) are members of a brother-sister controlled group operating under Corp A's profit sharing plan. The allocation formula is nonintegrated. Accrual requirements are 1000 hours and last day of service.

Management of A wants to make a comtibution for 1998 to employees of Corp A but not employees of Corp B. Rate group testing would apply, but have emplyees of B accrued a benefit under the pro rata allocation formula? Wouldn't the allocation formula need to be amended, and amended prior to !2/31/98? Thanks.

[Larry M]

My understanding is that any amendments would have to be made prior to the end of the year.

If 1998 hadn't ended, A could have adopted a second profit sharing plan and contribute to it.

In 1999, the two plans could have been merged, making sure that each corporation can contribute on behalf of its own employees.

[richard]

Larry M is correct.

You would have had to amended the plan to the change allocation structure before December 31.

[MWeddell]

I also agree with Larry M and richard that the amendment needed to be made before the end of the year for a profit sharing allocation that has a last day of the plan year requirement.

Once a conditions for receiving an allocation of contributions or forfeitures for a plan year have been satisfied, one cannot retroactively change the conditions to lessen the percentage of contributions or forfeitures that a participant may receive. Treas. Reg. 1.411(d)-4 (Q&A-1(d)(8)).

[Guest Brandon]

[This message has been edited by Tom Poje (edited 01-25-99).]

[Guest PAM]

I got a call from someone with the following scenario. The company has a 401(k) plan and profit sharing Plan with a cross-tested formula. The owner's son had to waive out of the profit sharing portion to get the plan's formula to pass. Does he also have to waive out of the 401(k) portion, or are they treated separately. My understanding is that the document allows for the waiver.

[Guest Thornton]

I believe the answer depends on how the 401(k) portion of the plan is being handled. In applying the nondiscriminatory classification test, the employer must disaggregate the 401(k) and p/s portions of the plan. However, the 401(k) and p/s portions of the plan must be aggregated for purposes of the average benefit percentage test. If a safe harbor 401(k) plan is used, the employer can use the employer contribution for both the safe harbor contribution and cross testing allocation.