SIMPLE and late deferrals

[BFree]

I see a lot of posts about the self-employed and the timing of deferral deposits, but not that many about employees. The situation I have is:

2 person plan. 1 is the 100% owner.

Contributions were withheld and not remitted for 2002. They still have not been remitted. Can they be remitted? Must (and can?) the custodian accede to the client's request to code these as 2002 deferrals?

If they will not be coded as 2002 deferrals, can the client pay them in cash to the participant(s), effectively overriding the deferral election?

If the contributions must be deposited and they are not 2002 deferrals, are they post-tax contributions? 2003 deferrals?

Any guidance is appreciated.

[Gary Lesser]

There is a late deposit of the employee's funds under DOL rules, although the amount may be timely for deduction purposes up until April 15 (plus extensions).

There are rules that allow partners to defer when their EI is determined (as of 12/31) after the end of the year. It is unclear whether these rules wd apply to a sole-proprietor since they were based on the "partnership" regulations.

State law would probably require that the contributions be made. State law aside, the employer has stolen the employee's funds under the ERISA "plan asset" regulations.

Correction procedures: It depends, is it a Simple IRA or a SARSEP? If a SEP, is it top-heavy, and will the employer be making a nonelective contribution?

Contributions are not coded by the trustee by year. They may generally be claimed in accordance with the deduction rules when made after the end of the year. No specific designation is required. In your case, they seem to have been deducted in 2002, making them 2002 deferrals.

Sure, there are other fixes. But, most people don't like to sleep with one eye open.

[Guest wjr]

I agree deposits to a SIMPLE IRA should be timely, but they are not subject to the DOL deposit rules, are they?

[BFree]

I am working under the impression that they were subject to the DOL deposit rules. It is a SIMPLE IRA. Question is coming from the accountant, so the deduction year is still part of the question.

Looks like it will be: deposits need to be made; will be late; correction method to be determined; 2002 deduction/deferral.

Thanks.

[Guest Derelict]

I agree deposits to a SIMPLE IRA should be timely, but they are not subject to the DOL deposit rules, are they?

{Yes they are, see following quote. Thanks Delelict - gsl}

From CFR 2510.3-102 :

(2) With respect to a SIMPLE plan that involves SIMPLE IRAs (i.e.,

Simple Retirement Accounts, as described in section 408(p) of the

Internal Revenue Code), in no event shall the date determined pursuant

to paragraph (a) of this section occur later than the 30th calendar day

following the month in which the participant contribution amounts would

otherwise have been payable to the participant in cash.

-D