Okay to make a profit sharing contribution of 4% for first 6 months an

[John A]

Is there any reason that an employer could not adopt a Board Resolution (or a plan amendment) that specified a 4% contribution for compensation during the first 6 months of the year and a contribuiton of 5% for compensation during the last 6 months of the year?

[Guest mo again]

Issue #1 is whether plan document allows for this type of allocation. Typically the document will prescribe the manner in which the contributions for the plan year are allocated. A board resolution would probably not be sufficient to change this, but of course a properly-crafted plan amendment could do the job.

Issue #2 is that I believe you are thrown out of design-based safe harbor since you no longer have a uniform allocation rate, and will need to perform some general testing. The uniform allocation rate requirement is determined on the basis of plan year compensation.

[richard]

I agree with Mo Agains's comments.

#1 - one has to be careful with the wording of the amendment, but that really shouldn't be a problem for someone competant.

#2 - If you're currently in a safe-harbor, you'd have to do the general nondiscimination test, but unless you've got some weird changes in payroll midyear, passing should be easy.

If you're currently not in a safe-harbor and already using the general test, this design should probably not make the testing any more difficult to perform (you still test annual allocations vs. annual compensation even it the annual allocations are determined based on the sum of two semiannual allocations), nor more difficult to pass (unless again you've got some weird changes in payroll midyear).

[John A]

In this case, the document is a prototype, so it appears to me that even a correctly-worded amendment would kick this out of prototype status and change it to an individually-designed document (I do not see a way to use any language in the prototype to accomplish the change).