Terminated Partners Eligible For Profit Sharing?

[Princess(k)]

Is a partner that has separated from service (in September 2016) eligible to receive a profit sharing contribution if there is a last day allocation requirement?

[david rigby]

This question might answer itself, but (as always) the first inquiry is "what does the plan say?"

[401king]

If he separated from service what could make him eligible? After September he simply became a shareholder/owner.

[Princess(k)]

The plan has a last day requirement for contributions, so my rationale is no, the partner is not eligible to receive the profit sharing contribution.

HOWEVER, from a compensation perspective for partner elective deferrals, earned income is treated as currently available on the last day of the partnership's taxable year so could have made a deferral election prior to the end of the taxable year and the contribution is made by the partnership tax filing deadline.

Thoughts?

[duckthing]

The plan has a last day requirement for contributions, so my rationale is no, the partner is not eligible to receive the profit sharing contribution.

HOWEVER, from a compensation perspective for partner elective deferrals, earned income is treated as currently available on the last day of the partnership's taxable year so could have made a deferral election prior to the end of the taxable year and the contribution is made by the partnership tax filing deadline.

Thoughts?

I may be missing something here, but... the compensation perspective is probably not relevant here, unless the plan document's language on the last day requirement is something along the lines of "has Eligible Compensation paid or payable on the last day of the Plan Year".

Maybe the partner retired and the plan has an exemption to the last-day requirement for retirement? I don't see how else they'd be eligible.

[austin3515]

Princess, the key word you used, which the IRS has discussed as well, is that it is "treated" as earned. IT is not actually earned.

By my clock you still have 3 days to eliminate the last day rule. But remember, amendments must satisfy nondiscrimination so if the only one to benefit is the partner, then (assuming he is an HCE?) you are outa luck.

P.S. Is 401king your father? Ha ha ha

[GMK]

P.S. Is 401king your father? Ha ha ha

Good one, Austin. Wondering if that would make him Darth 401king? or does that Carrie (RIP) this joke too far far away?

[Peter Gulia]

Along with reading the plan's provisions and carefully interpreting the provisions if any is ambiguous, an employer/administrator might consider that fixing the date of when a deemed employee's deemed employment ended might be less obvious than it is for a common-law employee.

http://www.ecfr.gov/cgi-bin/text-idx?SID=de2a11e42d5517340084ea34d12a1004&mc=true&node=se26.6.1_1401_610&rgn=div8