New interpretation of definitely determinable standard for profit-sharing plans prohibits multiple allocation formulas

Article Abstract:

An IRS field directive interprets IRS regulations under IRC section 401 to prohibit profit-sharing plan allocation methods that given employers the discretion to select which allocation methods will apply to different groups of employees. The regulations made the definitely determinable standard for profit-sharing plan allocations more stringent and more broadly applicable. Discretionary contributions to profit-sharing plans are still allowed, but employers must use a fixed, nondiscriminatory method of allocating the contributions among employees.

Profit sharing

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Qualified plan cannot exclude part-time employees as a class: s. 7805(b) relief appropriate where employer relied on determination letter

Article Abstract:

The IRS ruled that an employer could not exclude all its part-time workers from participating in the company's qualified plan, but the IRS provided the employer with IRC section 7805(b) relief because it had issued a favorable determination letter. IRC section 410(a) has limited employers,ability to based plan coverage on the amount of work an employee does per year. The IRS ruled that it will not disqualify the plan retroactively when there was no misstatement by the taxpayer and the taxpayer relied on the IRS' determination letter.

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IRS issues field directives on definitely determinable allocations and exclusion of part-time employees

Article Abstract:

The IRS issued two field directives that address benefit plan qualification issues implicated by allocations among employee groups and by exclusion of part-time employees from participation. The IRS provided an example of plan language that did not establish a formula that would result in definitely determinable allocations. The IRS ruled that exclusion of part-time employees may cause plan disqualification because of an indirect service requirement even though the exclusion would not necessarily violate the coverage requirements.

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