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Simple match never contributed by employer


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What happens if employer refuses to contribute a SIMPLE Match, for his employees?

Is there an excise penalty he must pay? If yes, what IRS Form must he use to pay it?

Must the employees sue the employer to get the match ?

What punishment will be administered by the IRS ... upon the plan, on the employees, or on the employer, if the employer simply never contribues the match ?

The employer is a corp. The plan year is 2008. The match was due by 9/15/09. Is the employer allowed to contribute the match "now" (in Oct 2009)? I would think that a late match is better than no match at all.

Is there a penalty or ramiifications for contributing the match after its due date ?

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I don't know if you're talking about a SIMPLE IRA or a SIMPLE 401(k).

There really is no deadline for making the match that subjects the employer to a penalty. The employer $$ are not plan assets until contributed, so there are no PT issues with a late employer contribution (except a late employer contribution of deferrals). Of course, the employer ought to make the match by the deadline, if any, in the doucument, or you risk potential plan disqualification--a contribution made beyond any plan deadline probably ought to be made through an EPCRS correction.

A late contribution may shift the contribution's deductibility to a different year and it requires that earnings also be contributed.

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  • 1 month later...

I too have an ex-employer who failed to contribute to my SIMPLE IRA for the entire 2008 year, stating my SIMPLE IRA is an profit sharing program and since they didn't make a profit, no contributions can be allocated. I have a hearing this Monday for additional issues after being laid off-vacation pay and penalties for late payment of last paycheck...I don't know if it is a Small Claims Court issue or a Labor Commissions dispute...

I am wondering if you found anything? I have been online all day searching and this is all I found. Hope this helps you...

IRS states that "mistakes" (on page 14 at www.irs.gov/pub/irs-tege/simple_fixit_guide.pdf) are sometimes made and can be corrected by doing the following:

How to Fix the Mistake:

Corrective Action:

If you excluded eligible employee from the plan, you are required to make up for the

employee’s “missed deferral opportunity” by making a contribution of 1.5% of

compensation for the period of the employee’s exclusion plus earnings (calculated from

the date that the salary deferral contributions should have been made through the date

of correction). The “missed deferral opportunity” is the economic loss to an employee

resulting from not having a portion of compensation deferred on a pre-tax basis to a

vehicle where the amounts deferred can accumulate tax-free, until the employee takes a

distribution. For this purpose, since the employee did not have a chance to make an

election, it is assumed that the employee would have elected to make a deferral of 3% of

compensation. The required corrective contribution to replace the missed deferral

opportunity is 50% of the missed deferral or 1.5% of compensation.

If, under the plan, the employer contribution is a match, then the required employer

contribution is 3% of compensation plus earnings (calculated from the date that you

should have made the required contributions through the date of correction). If the

improperly excluded employee made the 3% of compensation salary deferral as

assumed in the prior paragraph, then the employee would have received a matching

contribution equal to 3% of compensation. (Note: Base matching contributions on salary

14

deferral contributions that the employee would have made; not the corrective

contributions made to replace the “missed deferral opportunity.”)

If, under the plan, the employer contribution is a nonelective contribution (i.e., an

employer contribution that does not depend on the salary reduction contributions made

by its employees), then the required employer contribution is 2% of compensation plus

earnings (calculated from the date that required contributions should have been made

through the date of correction).

Example:

Nancy met the eligibility requirements under her employer’s SIMPLE IRA plan but the

employer did not permit her to make salary reduction contributions to the plan. During

the year of exclusion, Nancy made $10,000 in compensation. The terms of the SIMPLE

IRA plan require an employer contribution on behalf of each eligible employee in an

amount equal to the employee’s salary reduction contributions, up to a limit of 3% of the

employee’s compensation for the entire calendar year.

The required corrective employer contribution must replace Nancy’s missed opportunity

to make salary reduction contributions and any employer contributions that Nancy would

be entitled to under the terms of the plan.

1) Missed deferral opportunity. Nancy’s missed deferral is 3% times $10,000 or

$300. The required corrective employer contribution to replace Nancy’s missed

deferral opportunity, before adjusting for earnings, is 50% of $300, or $150.

Thus, the required corrective contribution for an employee who the employer

improperly excluded from making elective deferrals to a SIMPLE IRA plan is

equal to 1.5% of compensation (adjusted for earnings).

2) Employer contributions. Under the terms of the plan if Nancy’s missed deferral

was 3% of compensation, then she would have been entitled to an employer

matching contribution equal to 3% of compensation. Thus, to replace the missed

matching contribution, the required corrective employer contribution is 3% times

$10,000, or $300. Adjust the corrective contribution for earnings.

Total corrective employer contribution. The total employer contribution on behalf of

Nancy is equal to the corrective contributions required under 1) above to replace

Nancy’s missed deferral opportunity ($150 adjusted for earnings) and 2) above to

replace the employer contributions that Nancy would have been entitled to under the

terms of the plan if she had made a salary reduction contribution equal to 3% of

compensation ($300 adjusted for earnings).

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