Correcting Profit Sharing Allocation

[52626]

during the 2013 5500 audit, it was discovered the platform used the wrong compensation to allocate the profit sharing contribution. The platform will correct the allocation and deposit the "lost" income. This means some participants will get an additional deposit and some will have a portion of the contribution removed.

The question is does the client HAVE to notify the participants of the error. While it may be advisable to let the participants know what happened, want to know it it is required.

Thanks

[ETA Consulting LLC]

If the contribution was discretionary, then I don't know about the part of having a contribution removed. Typically, the most conservative approach would be to true-up to the highest percentage. Obviously, if that would "break the bank", then you might attempt to get the correction approved through VCP. There is an argument that may be made that once you allocate a contribution to a participants account that is consistent with the terms of the plan, then the attempt to remove would be a cutback.

Good Luck!

[BG5150]

ETA, it seems that the allocation was not in terms with the plan doc in that it was based on incorrect compensation.