25. Profit-sharing plan -- definite

Statement of Requirement: Reg. §§ 1.401-1(b)(1)(ii), 1.401(a)(26)-6(b)(7), 1.410(b)-6(f); ~~Rev. Proc. 2017-41R~~ ev. Proc. 2023- 37, 2023-51 I.R.B. 1491, secs. ~~5.16(1)9~~ .03(1) and 9.03(3)

Sample Plan Language:

Employer contributions will be allocated to each participant who either completes more than 500 hours of service during the plan year or who is employed on the last day of the plan year in the ratio that such participant's compensation bears to the compensation of all participants.

(Note to reviewer: A plan that utilizes elapsed time in lieu of counting hours of service may substitute the completion of either 91 consecutive calendar days or 3 consecutive calendar months for 500 hours of service in the above sample language.)

(Note to reviewer: A Nonstandardized plan may, as an option, require a participant (a) to be employed on the last day of the plan year, and (b) to have completed up to 1,000 hours of service during the plan year to receive an allocation of the employer contribution.)

(Note to reviewer: See LRM #94 for additional formulas available to Nonstandardized plans.)

(Note to reviewer: Effective for contributions made after December 29, 2022, plans may permit participants to elect to receive matching and/or employer nonelective contributions as designated Roth contributions. See Section 604 of the SECURE 2.0 Act of 2022. A matching contribution or nonelective contribution may be designated by the employee as a Roth contribution only if the employee is fully vested in that type of contribution at the time the contribution is allocated to the

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employee’s account. The following sample adoption agreement election may be used to enable plan terms to administer this election. Although not replicated therein, this election may also be used in conjunction with the formulas described at LRM #25A, #29 and #94, all of which provide allocation formulas for nonelective contributions. See Part L of Notice 2024-2 for administrative guidance on this provision. See also CODA LRM IX for matching contributions and CODA LRM III for Roth Contribution sample plan language. The election below can be made independently of any election in CODA LRM IX with respect to matching contributions.)

Sample Adoption Agreement Language:

The Employer’s nonelective profit-sharing contribution will be:

[ ] a. Made as a pre-tax discretionary contribution.

[ ] b. Subject to participant election, made as a designated Roth nonelective contribution, in which case (i) the contribution amount and earnings thereon will be 100% fully and immediately vested, and (ii) it is includible in an individual’s gross income for the taxable year in which the contribution is allocated to the individual’s account.

If no election is made, Election a applies.

Election b can be made only if (i) the employee is fully vested in employer profit sharing contributions at the time the contribution is allocated to the employee’s account, (ii) it is made by the employee no later than the time that the contribution is allocated to the employee’s account and (iii) it is irrevocable with respect to those contributions.

An employee must have an effective opportunity to make or change the designation afforded by Elections a and b at least once during each plan year.