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Posted

Employer sponsors a 401(k) Plan. 

Certain (now former) employees form their own P.A.s and sign joinder agreements so they can continue to participate in Employer's 401(k) Plan.

Former employees want to keep their P.A. payroll deferrals semi monthly but actually deposit the maximum contribution via a single check from the PA before the deferrals occur.

Is this a prohibited transaction?

Posted

Just to confirm, does your reference to P.A. mean Professional Association?  Professional Association are corporations and could either be a C or S corporation.  In either event, their compensation is reported on a W-2.

By definition a salary deferral must be made from compensation that is earned but not yet paid to the individual (hence "deferral").  Deferrals cannot be attributable to compensation that is not yet earned.  Any pre-funding of deferrals in not allowed.

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