A medical partnership sponsors a money purchase and profit sharing plan. The three equal partners consists of two PA's and an S Corp with the respective Dr. Partner owning 100% of his corporation partner [No plans in the individual corporation]. All employees are in the partnership and are covered under both partnership plans. The Dr.'s perform services on behalf of the partnership and their respective corporations receive a K-1's in the amount of the partner's [corporation] distributable income. The Plans are paired and both are PPD Standardized documents and the individual medical corporations are participating employers in both plans.

For determination of contribution and allocation purposes and Section 415 limits, etc., what compensation should be used for the Dr's in the partnership plans? K-1 distributions from the Partnership? W-2 Income paid to the Dr. by his PA who is a Partner? What about the Dr. whose partnership entity is an S Corp? His could be taking distributable net income.

Any thoughts?

The amount of income the Docs are paying fica, medicare or self employment tax on.

I think the compensation is what is shown on the doctor's W-2. Since the individual PA's and the Sub-S are taking the tax deduction, not the partnership you need to base it on the W-2. I've seen cases where the K-1 may have income but once it flows through the corporation, the W-2 is very small. Also many times they will pay wives a salary and issue a W-2. It's not fun to find out about this after the fact.

Actually, from the inforamtion provided, the corporation did not adopt a plan, this means that the w-2 wages earned from the corporation cannot be used.
It is the partnership that establihhed the plan, therefore, it is K-1 income that must be used

Each of the member [corporations] adopted both plans of the LLC. Although I did not specifically mention that in the original posting. Therefore employees of those member entities are covered.

It seems reasonable to me that the W-2 income paid to the Doctors by the LLC member corporations would be the correct amount to be used, however since that income would have had FICA and Medicare paid, it would not be treated the same as if the members were actually individuals and the distribution would be self employed income. While it seems reasonable, I can not find a clear reference or answer.

Thoughts?

None of the doctors are self-employed. They are simply corporate shareholders that are employed by a corporation that is a member in an LLC.

Any of the doctors that does not receive a W-2 from his corporate employer, cannot participate in the plans.

The doctors are not LLC members .... but their corporations are. Therefore the doctors are not self-employed.

Although self-employment "ordinary income" of an individual partner is deemed eligible Sec 415 compensation.... a corporate partner is not an individual partner, and thus the doctors are not eligible for the plans simply because their corporate employer earns ordinary income from a partnership.

I'm with Moe (Does that make me Larry, Curly or Shep). Also any pass-through income from the S Corp. can't be considered.

On the same thread. A LLC consists of all individual corporations- each partner is his or her own corporation. Some of the corporations have ownership in the LLC- some do not (i.e some are equity partners- some are not). Are all of the partners (even the non-equity partners) both key and HCES due to the fact that they are 100% owners of participating corporations? Or, do we look at ownership in the LLC when determining who is HCE and key. All of the partners are participating employers in the Plan. Any help is greatly appreciated!

Thanks