new comparability and partners

[Chippy]

In a new comp 401(k), is it acceptable for each partner to decide their employer contribution? The plan is set up for individual groups.

Partner A - makes the maximum. Partner B - does a flat $5,000 and Partner C - wants to contribute zero.

Is there a reg. that we can refer to?

Thanks

[mphs77]

It is possible for each group to get the allocations you pose, so long as it passes

testing.

What does the Plan say about the allocation provided for each group?

[Chippy]

Below is the section from the adoption agreement. Is there something that I can refer the client to for reassurance that it is ok for each partner to do their own thing?

[ X ] New Comparability - One Group per Participant. In an amount designated by the Company to be allocated to each group. For purposes of this D.18g, there shall be one group created for each Participant eligible to receive allocations of Profit Sharing Contributions. The contribution shall be allocated to each group in a manner determined by the Company. The amount allocated to one group need not bear any relationship to amounts allocated to any other group. The Company shall notify the Plan Administrator and/or the Trustee in writing of the amount of contributions allocated to each group.

[mphs77]

So long as the Company passes a resolution, or a partnership agreement, to contribute those individual amounts, it should be fine.....unless testing ruins it for you.

it is not a reg issue, it is a Plan document issue and the document allows for it.

[jpod]

No, it is NOT acceptable. That would make the feature a CODA. It IS acceptable if each partner expresses a desire, but the Plan document must make each allocation a Partnership decision, and the Partnership's governance must be such that it is not an individual partner-by-partner decision.

[mphs77]

Which is why I said "So long as the Company passes a resolution, or a partnership agreement" that it is acceptable....

[jpod]

I know you said that, but I was trying to point out that it is not enough to pass a resolution, etc., unless under the partnership's rules of governance such action is required to implement the allocations. Maybe splitting hairs, but it's important.

[QDROphile]

For example, if the SPD (or other communication) says that each year each partner will determine the partner's profit sharing contribution for the year, that would be of concern unless the IRS has abdicated, which it pretty much has. The decision about contributions has to at least have the appearance of being made at the entity level, not at the individual level.

[jpod]

QDRO, are you saying that the acceptance of form over substance by virtue of "governance" is itself abdication, or if the IRS position is even looser than that? (I would agree that it is abdication, I'm just wondering if there is something more to your comments which I may have missed.)

[Chippy]

the company does do a partnership agreement each year with the contribution listed for each participant. Is that enough?

[QDROphile]

I know no secrets. The IRS let the horse out of the barn with its inattention to execution of new comparability and appears to have given up the chase. However a blatant pie in the face, with no attempt at illusion or formality, might get exceptional enforcement.