Company wants me to fund my own QNEC after test failure -- I'm a partner

[calexbraska]

My company reached out to me letting me know they failed discrimination testing and, as a result, had to give me additional profit sharing contributions.  That makes sense, but they also said I am required to fund it out of pocket.  Normally, it would be up to the company to fund this, but I'm a partner at my company.  They've already funded it, but they are requesting a reimbursement.

Is this correct?  Am I required to fund this?  

[MoJo]

You are really asking an accounting question for partnerships and other entities where the expenses of the company ultimately flow through to the partners in a reduction of their income/draw.  It is common for partners in a professional services firm (generally) for all benefit costs to be allocated directly to the partner.  I can't say I've seen a partnership ask for reimbursement when it makes a QNEC, but would expect your share of the QNEC to be charged against your partner share....

[CuseFan]

so you are a partner but not an HCE? interesting.

yes, your contributions come out of your earned income - but then you also get to deduct this directly on your tax return.

[Mike Preston]

There is some confusion here which may or may not be relevant.  The OP said:  "... had to give ME additional profit sharing contributions." (Emphasis added).  If you were a partner for any part of the plan year in question it is highly likely you were a "highly compensated employee" (what we call an HCE).  If so, it is highly unlikely that they had to give you additional profit sharing contributions.  MoJo just assumed you misspoke. CuseFan just assumed you were in that unlikely category of being a non-HCE.  Can you clarify?

[shERPA]

Less than 5% partner?  Not in top paid group?  Or maybe an error was made in census data (not disclosing ownership, or not properly identifying HCEs)  to whomever is doing the testing?  Or are you a "non-equity" partner?  Which isn't really a partner at all. 

If you are a partner then this request for payment should be governed by the partnership agreement, which should spell out how certain expenses such as the partners' share of employer contributions are allocated to partners.

[Luke Bailey]

calexbraska, if you were an NHCE for the year and are required to get a QNEC (which, as others have pointed out, seems unlikely), then as MoJo pointed out this will be a question of whether, under your partnership agreement nonelective retirement contributions are specially allocated to individual partners. Maybe you are an HCE and what they're saying is that you have to bear your share of the cost of a QNEC for staff? Again, either way, it's a question of whether the partnership does or does not allocate this expense individually, rather than according to overall profit share. Most partnerships specially allocate, some do not. The Internal Revenue Code is indifferent to which is done.