A Profit Sharing Plan-Once a year valuation

[Penpack]

The employer is part of a controlled group. The primary plan sponsor uses a fiscal year ending 9/30 and the plan year is the same. The adopting employer has a calendar year and is using the plan as a calendar year plan. This has been going on for years. The plan is also cross tested. The plan's definition of compensation says "use the plan sponsors fiscal year" which might make using 12/31 compensation for allocation purposes for the adopting employer okay. There is no definition for testing compensation. The fiscal year plan has dual entry dates; the adopting employer (who has a calendar year fiscal year) has dual entry dates of 1/1 and 7/1. None of this is stated in the document, only the entry dates for the fiscal year plan. The plan uses entry date compensation. I think this plan document and plan has problems if they were ever examined by the IRS. Anyone ever had something like this? And am I really off-base? And something like this is okay?

[K2retire]

If the document says the entry dates are 4/1 and 10/1 how do they justify using different dates? I believe that is a failure to follow the terms of the document. That will also lead to having used the wrong entry date compensation for a number of people.

I don't think you're off base.

[Peter Gulia]

Would it be simpler for the different businesses (even if they are parts of one employer) each to maintain its distinct plan?

While those plans might be aggregated for coverage, non-discrimination, and top-heavy testing, is there anything precludes each business from maintaining its plan with its particular provisions?

[Penpack]

I don't think there would be anything precluding for separate plans. I think however, the plan sponsor was told because they were a controlled group, they could operate the plan this way. I do believe they were told this by the business owner of the TPA firm where I used to work. I never worked on this plan but because of some reorganization done and realignment of the work, I was assigned this plan. I read and re-read the document, looking for something that would provide guidance. I documented what I thought was wrong; could not give my blessing on the cross-testing and turned it over to management. This client/sponsor reads everything closely and tries to do everything by the book. I recently quit this job; one reason due to reorganization and unfair realignment and in the back of mind, that this is a second-rate TPA firm. After I documented and discussed what I thought was wrong with this document, the owner of the TPA firm says, I think it is okay. Strange but true, firm had 6 employees, and two of us quit during February. Glad I'm out of there.