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When does profit sharing accrue

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Plan sponsor declared a profit-sharing contribution for 2022 and communicated to participants the exact amount that they would receive. The plan sponsor changed their mind and decided not to remit. Is that permissible once communicated or did the benefit accrue?   

Thanks for nay guidance.

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Ignoring the public relations issue with the employees for the employer changing their mind after notifying the employees they would be getting a PS contribution, unless it's required by the plan document then it's not required to be made. They could give a supplemental notice something like - we regret to inform you but the prior notice of a 2023 contribution was distributed in error, there will be no PS contribution for 2023 - something like that.

That said I am not a lawyer and I don't know if the initial notice created a de facto contract obligating the employer to the PS contribution when they notified employees. Were corporate minutes filed approving the contribution? Have they filed a tax return claiming the contribution?


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Did they do a formal board resolution declaring the contribution?  I believe that can make a difference but a lawyer could clarify that more if needed.

Did they allocate it or deduct it? 

But most likely if it isn't required by the document my understanding they can change their mind.  But given how angry people might be it might be better to talk to the plan lawyer and not count on free advice here.

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Consider that a writing (even a little email) stating or describing a nonelective contribution might be among the “documents and instruments governing the plan[.]”

Consider too that what the plan’s governing documents provide is only one of several lanes a claimant might drive in.

Among others, a disappointed participant might pursue one or more of the other legal and equitable remedies ERISA’s title I provides. Those can include remedies for miscommunication.

The plan sponsor, the plan’s administrator, and other plan fiduciaries each will decide how much risk one wants to assume.

If the employer wants to evaluate how relevant law applies and which risks to assume or manage, it might call in a lawyer.

This is not advice to anyone.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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