415 reduction for overlapping plan years

We started a new calendar year PS plan eff 1/1/20 for a corp that previously had a 4/30 PYE (there are reasons).  The CPA who ran the prior plan (who is one of the reasons) is planning out his contributions for 4/30/20.  The owners of course want to max their profit sharing allocation for the 4/30/20 plan year.

If he uses compensation 5/1/19 through 4/30/20 - and I can't see any reason why he wouldn't - then doesn't that cause an issue for the 12/31/20 PYE?  It feels like the 415 limit (and maybe even the comp limit) should be reduced somehow so they're not double-dipping.  If we had done this via a short plan year, we would have had a year with less comp and pro rated limits, so it feels odd to benefit by doing it this way (though I know there are other times when doing things in a more convoluted way does give an advantage...).

Am I looking for a problem where there is none, or is my gut on the right track?  Thanks.

AlbanyConsultant, when you changed the plan year, I assume (but you should check the amended plan document to be sure) you also changed the limitation year (i.e., you probably did not keep the 4/30 limitation year). That means you created a short limitation year for the last (old) limitation year, preventing overlap. See Treas. Reg. 1.415(j)(d).

On 11/20/2020 at 6:03 PM, Luke Bailey said:

AlbanyConsultant, when you changed the plan year, I assume (but you should check the amended plan document to be sure) you also changed the limitation year (i.e., you probably did not keep the 4/30 limitation year). That means you created a short limitation year for the last (old) limitation year, preventing overlap. See Treas. Reg. 1.415(j)(d).

But the plan year didn't change. A brand new plan was created that overlapped the other plan.

I don't know the answer as to why it was done this way, but I would have preferred to do it differently.

BTW, I don't know the 415 limitation answer.

There were... things in the old plan that we wanted as much separation from as possible.  I wish we didn't have to do it this way, either.

The CPA decided that they were not going to put in a contribution for the 4/30/20 PYE after all (I don't know why).  I feel like it is less necessary to reduce the calendar 2020 limits in the new plan because there is no benefit being given on the 1/1 - 4/30/20 compensation in the old plan.

34 minutes ago, AlbanyConsultant said:

The CPA decided that they were not going to put in a contribution for the 4/30/20 PYE after all (I don't know why).  I feel like it is less necessary to reduce the calendar 2020 limits in the new plan because there is no benefit being given on the 1/1 - 4/30/20 compensation in the old plan.

I think that's probably safe to do.

Doesn't each plan have its own 415 limit?

5 hours ago, Bill Presson said:

But the plan year didn't change. A brand new plan was created that overlapped the other plan.

I don't know the answer as to why it was done this way, but I would have preferred to do it differently.

BTW, I don't know the 415 limitation answer.

OK. I missed that, Bill. Thanks for correction

2 hours ago, BG5150 said:

Doesn't each plan have its own 415 limit?

You aggregate all DC plans of same employer and have just one limit. 1.415(f)(1)(a)(2).

2 hours ago, Bill Presson said:

I think that's probably safe to do.

 1.415(j) provides rules for aggregating plans of same employer that have different limitation years, but here if there was no contribution for LY of plan 1 ending 4/30/2020, you would get a pass under 1.415(j)(c)(2), so I think you are right, Bill.

7 minutes ago, Luke Bailey said:

You aggregate all DC plans of same employer and have just one limit. 1.415(f)(1)(a)(2).

 

I had a brain fart.  I was just discussing with a co-worker about a client who is an employee of a company and he has his own plan (un-related).  So he has two 415 limits.

Yeah. Know the feeling, BG5150.