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Posted

Company X has a 401k plan.  Partners in X have frequently caused the company to make profit sharing contributions.  With new comparability, the company can make varying profit sharing contributions for different participants as long as the testing passes.  Right after a year ends, a partner leaves the company.  The former partner is claiming that he has a right to have what was a projection of profit sharing contributions prepared and circulated before he left the company.

The plan document speaks of the company giving itself as the plan administrator a written notice, designating the allocation.  That's not yet happened.

Do you know of case law, IRS or Dept of Labor rulings that suggest when a company has acted to the point that its profit sharing discretion is exercised and the company is then obligated to make a profit sharing contribution? 

Posted

I can't answer your question, but if the person was a partner then he is considered self-employed and his profit sharing contribution essentially comes out of his earned income. Unless all the receivables, buy-outs, etc. have been reconciled, couldn't the final profit sharing be accommodated with other final accounting issues? it doesn't cost the firm because it's really self-funded, and allowing could head off a legal action (whether founded or not).

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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