Deemed CODA in a P.A.?

[BG5150]

We have a company that is a P.A.  One of the owners is asking if he can take a smaller Profit Sharing so he can get a bigger bonus this summer.

Is that a deemed CODA?

[jpod]

What is your role here?

[BG5150]

TPA

[jpod]

There are fundamental issues which need to be addressed here (terms of plan document, bylaws and other rules of governance of the P.A.); this is not a question simply answered "yes" or "no."  No easy answer can be given here.  If someone wants to type out a 3 or 4 paragraph summary of how one would go about addressing this question more power to him or her. 

[BG5150]

In this case, I don't think I have much of an issue.  Owner deferred $2,500 and the PS will be $3,000.  So I'm under 402(g).  And the plan is all HCE, so no ADP test to consider.

However, I'm interested in the answer, as my knowledge of deemed CODA is lacking.

As TPA, what might be my responsibility here?  I have it in black and white that an owner wants to reduce his PS so he can get a bigger bonus.  Do I mention it?  What IF it affected the 402(g) limit and/or testing?  Do they need an attorney to review this?  An accountant?

[ETA Consulting LLC]

Whether or not a contribution is a CODA would seem to be determined by drawing a line between "What happens if the contribution is made" and "What happens if the contribution is not made".

In your case (and I'm assuming the PA is taxed as a corporation), the owner has a simple option, either make a nonelective contribution to the plan or pay the amount as salary.  That is different from the owner paying a bonus and THEN asking "Do I defer part of this bonus to the plan or not".

I seem a big difference.

Good Luck!