415 confusion - non calendar year

[WCC]

Plan year runs from July 1, 2015 - June 30, 2016. Plan has a profit sharing allocation of 5% to all participants, no allocation conditions.

Participant earns $30,000 from July 1, 2015 - December 31, 2015. 

Participant earns $1,000 from January 1, 2016 - June 30, 2016. Participant terminated employment January 30, 2016.

Profit sharing allocation is $1,550 (5% of 31,000). Participant makes no deferrals. The profit sharing allocation is deposited in September 2016.

How does the 415 limit work in fiscal plan years? TPA is processing a 415 failure of $550 and I am trying to understand how this works in conjunction with a pro-rata profit sharing formula.

Thank you

[Bird]

5 minutes ago, WCC said:

How does the 415 limit work in fiscal plan years?

The same way it does for calendar years.  In my world, comp is $31,000 so the 415 limit is $31,000.

[Lou S.]

I agree with Bird.

Is there some reason they are giving for the 415 excess. Is the Limitation Year compensation somehow defined differently in the Plan document than the compensation for allocation purposes?

 

[CuseFan]

The key is the limitation year as it is defined in the plan document. It should be defined as the plan year, but sometimes for whatever reason it isn't and you get crazy situations like this.

[WCC]

16 minutes ago, Lou S. said:

Is there some reason they are giving for the 415 excess. Is the Limitation Year compensation somehow defined differently in the Plan document than the compensation for allocation purposes?

 

I checked the limitation year and it is the same as the plan year. I have asked why they are doing this and am waiting to hear back.

Thank you all!

[WCC]

correction to my last post. Limitation year is defined as:

Limitation Year means the Employee’s taxable year. However, if the Employee is in control of an employer (within the meaning of section 1.415(f)-1(f)(2)(ii) of the regulations), that Employee’s Limitation Year is the limitation year of that employer.

Looks like the TPA is correct. Penalizes terminated employees in this case.