2 plan year deduction in one tax year - revisited + DC plan

Hi

I would like to get some opinions.

I am doing a bit of research for a hypothetical plan design someone. I have worked with overlapping plan/tax years in the past but nothing like the following:

Calendar corporation ending 12/31/2020. Filed 2020 tax return end of May 2021 with extension.

Want to set up a DB plan (non-PBGC and covering owners+spouses only) effective 10/1/2020 with PYE 9/30/2021 using 2020 w-2's. Generating minimum required contribution (MRC) of 100k and 404(o) maximum of 120k. Not deposited till after 9/15/2021 so cannot be deductible for 2020.

Second plan year starts 10/1/2021 and end 9/30/2022 using 2021 w-2's. This plan generates 50k of MRC and maximum 300k of 404(o). They will deposit by 12/31/2021.

They want both plan years to be deducted for 2021 tax year, what ever the amount is permitted.

The plan year starting 10/1/2022 and ending 9/30/2023 will be deducted for 2022 tax year and based on 2022 w-2s.

There are a few different things I am trying to understand here.

1. The last line of 1.404(a)-14(c) states The employer must use the same alternative (either for plan year commencing in tax year or plan year ending in taxable year - I have no idea about the 3rd alternative i.e. weighted average so let's leave it alone) for each taxable year unless consent to change is obtained from the Commissioner under section 446 (e).”
2. The above item 1 is inconsistent, at least to my understanding, with the design in mind above. Am I missing something here and/or overthinking it?
3. Separate than above 1 and 2, what is the maximum deduction for 2021 tax year regarding the DB plan? I think 300k as it is the 404(o) limit under the 2021 valuation using 2021 w-2's. It includes for MRC's for 9/30/2021 and 9/30/2022 plus some cushion. I believe this is very conservative approach but still concerned about above 1 and 2

Now, as a bonus, they want to add a 401k/PS plan for 2021. I do not believe it is an issue if the plan is calendar plan (remember no testing issues as all are HCEs). The deduction would be limited to 6% of all 2021 w-2's as not covered by PBGC. Do you agree?

Your comments/expertise are appreciated.

No, I think you have it well thought out - the double deduction design will not work. Yes, adding a calendar year PS 401k will work provided the noted 6% PS limit to avoid combined plan deduction limit.

Do they not want a 2020 deduction or do they think they missed their chance? If their extension goes to 9/15 they can adopt a DBP for calendar 2020 and file an amended return to claim the deduction, we had a new client specifically do that.

Can they deposit their contribution before 9/15/2021? In this case they can open 2020 calendar year plan and deduct both contributions in 2021.

Calavera

No they do not want to, this is why I suggested after 9/15.

I am not sure I agree with you i.e. make a deposit prior to 9/15 so that you can open the plan for 2020 and deduct for 2021. As far as I know and always have operated under the assumption that, if deposited by the due date of the corporate return, it should be deductible for that year and not the year after (unless no room for the deduction).

Others may disagree with me.