testing each xt deposit... including receivable?

We have a small segment of our new comp plans that insist on making profit sharing deposits during the year even though they are cross-tested and even though we have told them repeatedly in writing that this is a Bad Idea and a Royal Pain.  Mostly, they give a small percentage (~1.5%) to each staff employee with each payroll to approximate the gateway minimum and none to the owners, so we figure that even if questioned, it could be shown that the deposit is non discriminatory.  Or they give the 3% safe harbor to each staff employee with each payroll but don't for the owners (though that's usually only for sole props and partnerships, which makes sense).

Today, someone here had the idea to ask if the receivable deposit, if tested on it's own, would be discretionary in favor of the HCEs.  Sure, if you look at all the information for the entire year it passes testing, but if you look at that one after-the-end-of-the-year deposit, it's almost all for the HCEs and would fail miserably.

Looking at this on the "receivable" is something I had never considered before.  Is this an even bigger issue than I realized?

1 hour ago, AlbanyConsultant said:

Is this an even bigger issue than I realized?

No.  Its not an issue.  It does not favor the HCEs.  The only reasonable way to look at this to see if HCEs are favored is looking a deposits YTD

A simplified example.  1 HCE and 1 NHCE.  NHCE gets funded over 10 payroll dates during the year, HCE gets funded once after the end of the year.

6 hours ago, AlbanyConsultant said:

We have a small segment of our new comp plans that insist on making profit sharing deposits during the year even though they are cross-tested and even though we have told them repeatedly in writing that this is a Bad Idea and a Royal Pain.  Mostly, they give a small percentage (~1.5%) to each staff employee with each payroll to approximate the gateway minimum and none to the owners, so we figure that even if questioned, it could be shown that the deposit is non discriminatory.  Or they give the 3% safe harbor to each staff employee with each payroll but don't for the owners (though that's usually only for sole props and partnerships, which makes sense).

Today, someone here had the idea to ask if the receivable deposit, if tested on it's own, would be discretionary in favor of the HCEs.  Sure, if you look at all the information for the entire year it passes testing, but if you look at that one after-the-end-of-the-year deposit, it's almost all for the HCEs and would fail miserably.

Looking at this on the "receivable" is something I had never considered before.  Is this an even bigger issue than I realized?

Definitely overthinking it; not an issue at all.

Is there any concern on the timing of the deposits? The year long deposits for the staff will clearly have a different investment experience than the HCEs. 

On 2/3/2019 at 10:32 PM, Gilmore said:

Is there any concern on the timing of the deposits? The year long deposits for the staff will clearly have a different investment experience than the HCEs. 

Has been discussed with IRS honchos over the years; they never saw it as an issue.  FWIW.

Larry - this is related to a different question I had asked, re the timing of employer matching deposits. Is the TIMING of such deposits considered an "other right or feature" and therefore just has to pass normal BRF testing, or is it something else? Was the IRS discussion in a BRF context, or nothing quite so formal?

Thanks.

2 hours ago, Belgarath said:

Larry - this is related to a different question I had asked, re the timing of employer matching deposits. Is the TIMING of such deposits considered an "other right or feature" and therefore just has to pass normal BRF testing, or is it something else? Was the IRS discussion in a BRF context, or nothing quite so formal?

Thanks.

I think it fair to say that the IRS folk back then never considered this an issue at all, either as a BRF or otherwise.  They of course backed that with their standard comment that an egregious situation could always be found to be problematic but they did not expect that in the ordinary course of operation the timing of the match payments would be a problem.  FWIW.

Gracias.