PS Sharing vs CODA

I have a plan that traditionally gives a 16% ps contribution.  They would like to allow employees to be able to take a portion in cash.  For example: 10% would still be PS, but the other 6% could be cash or deferred.  So, I believe I have a CODA situation.  

That being said, for the 2022 plan year, they would like to start this arrangement.  They would make the PS in March 2023.  Would the CODA portion be a 2022 or 2023 contribution? I am thinking 2023 deferral?  For the amount that is taken as cash, I assume it would be 2023 income.

Yeah, if that last six percent is going to be offered in March for the CODA election, then that's going to be 2023 wages and so that year's W-2 to report any deferrals on.

On 9/26/2022 at 10:47 AM, justatester said:

That being said, for the 2022 plan year, they would like to start this arrangement. 

Not clear what you mean by this statement, justatester. I think the key is when the cash portion would be available for employees that elect to take it in cash. If It's 2023, then I agree with Bri.

The profit sharing portion would be for the 2022 plan year, but the coda piece would be part of the 2023 plan year?

I agree cash or deferred.  And in your example, it is 2023.

So what this idea does is also to subject the "deferred" portion to the 402(g) limit and to testing (assuming this is 401(k)).  Arguably, doesn't this turn what once was profit sharing into income for the Participant (hence the term CASH or deferred).  There is no provision in most documents for an amount that was contributed by the sponsor as Profit sharing to be converted into deferral, so the process of choosing has to take place prior to the PS contribution being made.  Hasn't the sponsor just given everyone a 6% raise in your example? In my experience, the plan sponsor does not really understand how this works.  Plan Sponsors mean well with this idea, but it can be challenging to administer.

On 9/27/2022 at 5:32 PM, justatester said:

but the coda piece would be part of the 2023 plan year?

justatester, do you mean that the employees will make a decision in 2022 about whether they want 16% or 10%, and then the 10% or 16% ps, according to their decision, would be contributed in 2023, presumably before the employer's tax return due date for 2022 so as to be deductible for 2022? If so, for those who elected 10%, when do they get the 6% in cash?

I am not sure on the timing.  The company will declare 10% will be ps as 2022. The additional 6% will either be cash or deferred.  So I would think the 10% would be deductible for 2022?  Since the other 6% essentially becomes "cash" (whether deferred or paid in cash), I would assume it would be 2023?