Correction of pro-rata PS formula

[Cynchbeast]

Our client has a pro-rata Profit Sharing, fiscal Y/E 06/30.  Well after we finished reporting for PYE 06/30/15, the client advised us that 2 of the comps reported on the census were incorrect.  One owner's comp increased by $200,000, and another HCE's comp increased by $100,000.

We had allocated originally allocated 25% to everyone; revising the allocation, this was reduced to 13.52%.  The two people involved of course get a lot more, one owner gets a lot less and all the NHCEs get a lot less a little over half of original amount.  Distribution of participant statements will be a bit touchy.

If the employer wants to avoid reducing NHCE allocations, is there a way he can get around the pro-rata formula for the year?

 

[BG5150]

too late for an 11-g amendment

[Cynchbeast]

So in other words they just have to bite the bullet and deal with disgruntled participants?

Well, it was their fault anyway (nice when you know you didn't do anything wrong)

[Cynchbeast]

If he wanted to, is there a way for the owner to waive part of his allocation in order to pay others?

[Kevin C]

The only way I see for them to avoid reducing the NHCE allocations is to deposit the additional amount needed to bring the two who were shortchanged up to the same percentage of pay allocation that the others received, adjusted for lost income. That is the EPCRS pre-approved correction for someone who is improperly excluded from the PS contribution and should be equally valid for someone who received less than they should have under the allocation used.  They didn't follow the document and that needs to be corrected. Their two options are reallocate the contribution amount or make a corrective deposit.