Adding a Participating Employer

Takeover of an existing 401(k) plan on a vol sub document. The plan has 500 hours but no last day requirement for its discretionary pro-rata profit sharing formula. The owner's spouse has a business with no employees, just self-employed, but is not a participating employer in the plan. They are a group under common control, they do not meet the spousal exception.

They want to add the spouse's business to the plan as a participating employer, but want the profit sharing allocation under that business to be a different percentage. Meaning the plan sponsor can allocate X% but the newly added employer could allocate Y%.

Issues?

hmm - maybe start a new plan for the spouse, write it however you want - test it with the existing plan at year end - then merge the two for next year?

Or maybe the doc for the existing plan allows for different contribution allocation formulas for different participating employers? More like a multiple employer plan would be drafted (but not actually since you say they are control group)?

You have two distinct standards to account for: 1) Ensure the contributions to the plan are provided under a definitely determinable allocation formula; and 2) Ensure the contributions to the plan do not discriminate in favor of HCEs.

With that said, it seems pretty simple to add a co-sponsor to a volume submitter and have the level of contributions to each participating employer determined separately; satisfying the first standard.   Once you do that, show that it meets 401(a)(4) to satisfy the second standard.

When you frame is like this, there may be a thousand reasons it would work and a thousand reasons why it wouldn't.  But analyzing it along these lines should get you where to need to be.

Good Luck!