Definitely Determinable Allocation?

[jkharvey]

I posted this once before and didn't get a response. Does anyone have a suggestion or comment about this? I plan to submit to IRS for FDL, but would like to know what my chances are.

The employer wants to base profit sharing plan contributions on the following: $150/month for each employee with perfect attendance, $150/month for each employee with no accidents, $200/month for each employee based on some production goal for the company as a whole. No HCEs will benefit under this plan.

I haven't worked out all of the language yet, but wanted to know if anyone saw anything wrong with the basic concept of this just on the surface. I'm concerned as to whether or not this meets the definition of definitely determinable allocation formula.

Also, the ER wants to base these incentives on monthly goals (perfect attendance for the month, etc), but still wants a last day/1000 hr rule. My concern is that if the plan specifically allocates on a monthly basis, how can we have last day/1000 hr requirements?

[Everett Moreland]

You might consider whether basing allocations on perfect attendance and no accidents would violate workers compensation law or the ADA.

As to definitely determinable, my guess is it would be definitely determinable if you can define each of these three matters in a way that does not involve discretion. That could be difficult.

It seems to me that allocating on a monthly basis but with a last day/1000 hour requirement might violate the vesting rules as to long-term employees.

[Kristina]

Is the contribution to be made at the end of the year or on a monthly basis? I can see accounting for these amounts on a monthly basis, but not contributing the amounts until after the end of the year so you can determine who is still there.

I am assuming that all of the employees considered would earn more than $33,600? How do you propose to verify 415 limits? What do you plan to do about deductibility?

[Kirk Maldonado]

Would your approach be consistent with the FMLA?

[Erik Read]

Just to clarify - Kirk - we're going to say the FMLA is the Family Medical Leave Act for those not familiar with all our accronyms. Okie dookie?

[Kirk Maldonado]

Eread:

Good point. I think that too many persons (myself included) on this bulletin board tend to use acrnonyms that are not meaningful to all readers.

[Kristina]

Could someone explain what the Family Medical Leave Act (FMLA) has to do with this question?

I can see where the profit sharing allocation could be allowable, but I see many ramifications in deductibility and 415 limits, not to mention timing of the actual contributions. Am I alone in this?

[Erik Read]

You are not alone. I see your ramifications, and since I didn't post the question on the FMLA, I don't want to step on toes - but, I would suspect we're wondering if an ee were to go on leave under the FMLA, the document would have to account for that time, and depending on the State may or may not be able to exclude that from attendance in the formula.

Is that correct?

[Kristina]

EREAD,

I would agree that consideration would have to be given to what constitutes perfect attendance (Would FMLA time count,or vacations?) But I see so many problems if one just assumes that FMLA does not exist that I see problems with this whole premise.

I can see employees being excited about having a similar structure outside of a qualified plan. A retirement plan is normally not as structured for short term reward with a long term payoff.

[imchipbrown]

How about this? All these shananigans are done outside the Plan. At or near the end of a year, these "Bonuses" are calculated up. Employees are then given a Cash or Deferred election to put the money in a 401(k) account.

[Erik Read]

Okay - sure CODA (Cash or Deferred Arangement) would work just fine in this case, I think you could word the document to accept deferrals on the bonus, and the bonus is 100% up to the employer - no formula involved.

Only issue then is that the employee's may want the cash to take home rather than put away for retirement.