Again..about "new" definition of employer allocation

[Guest Alex Calin]

I submitted a cross tested plan for det. Instead of using % of comp for each class, I used something like "each year the employer will notify in writing the trustee as of the amount of $$ to be allocated to each class. Within each classe $$ will be allocated proportionally with each participant compensation (comp on comp)", etc.

The $$ allocted to class A was (or intended to be)equivalent to 25% of comp for each participant. However, since the salary of one of class A participants was 160,000( the others had comp of $100,000) his allocation was limited at 18.75% (30,000).

The IRS agent called and claimed that in analizing demo 6, he reached the conclusion that the above violates the "comp on comp" allocation within members of the class. He suggested I go back to % definition of allocation, giving to class A "up to 25% of comp." Or to add another class for that individual.

Any comments? Especially keeping in mind that such can hapen to an initially homogenous group when compensation from one year to another can vary.

Thx

Recent

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[Ervin Barham]

Without knowing the exact language you used (and that is real important!), my first reaction is that you could challenge the agent's thinking, in a nice way of course.

If you have language that allocates a discretionary amount to each class of employees and the 415 limit kicks in, then how could that violate anything?

One other method that I have seen is to incorporate language in your allocation formula to only allocate up to the 415 limit for each person and the remainder of the contribution would be spread among the other participants in the class.

If you are using a prototype sponsor like PPD, Corbel, Datair, etc. as your basis for the document, you might check with them for some standard language that will do what you want.

Hope that helps.

[Guest cascigm]

I have successfully used the "up to 25% of comp" for an allocation group. Although in principal I agree with the proevious response.