Top Heavy - Initial Plan Year accrual not paid

[legort69]

A sponsor is top heavy in the initial plan year (i.e. 2015). We accrue an end of year match to reduce the TH ratio below the 60% threshold that would in effect, get them out of top heavy for both the initial and subsequent plan years. They neglect to fund the match.

During 2017 can they still fund the end-of-year 2015 match to reduce the TH ratio, or does that option go away and they now must fund the 2015 and 2016 3% top heavy allocation?

Thanks for any input.

[Lou S.]

Aren't they already late with the TH contribution at this point? Doesn't it need to be in by 12 months after the year end?

And yes I would think at this point you need the 3% for 2015 & 2016, the only question that remains is do you do a VCP filing.

 

[RatherBeGolfing]

I agree with Lou.  They missed their chance at making a match contribution, which means they are top-heavy for 2015 and 2016.

As for them timing of the TH contribution, it gets a little tricky.  We discussed the timing of the TH contribution in this thread earlier this year.  

Some highlights from the EOB (Ch. 3B - Part 2 - Section IV - Part A - Item 5):

1. There is not a specified due date for top heavy contributions
2. In order for the contribution to be deductible for a particular tax year of the employer, IRC §404(a)(6) requires that the contribution be made no later than the due date (including extensions) for filing the federal income tax return for such tax year. 
3. Under the IRC §415 regulations, an employer contribution is generally treated as an annual addition for a particular limitation year if it is actually made no later than 30 days following the due date (including extensions) of the federal income tax return for the employer’s taxable year in which the limitation year ends. See Treas. Reg. §1.415-6(b)(7). 
4. Use deduction deadline or IRC §415 deadline as informal deadline. If the two deadlines discussed above are used as an informal deadline, then top heavy contributions made after such dates should include an adjustment for lost earnings. A reasonable approach is to use the IRC §415 deadline if the employer has not made the contribution for any non-key employees and to use the deduction deadline if the employer has missed one or more, but not all, non-key employees in making the top heavy contribution. This approach also would be consistent with a reasonable approach for making employees “whole” through the self-correction mechanisms under the EPCRS program. In the latter case, the earlier deadline is used because other non-key employees had the benefit of the contribution by such deadline for earnings purposes.

So yes, they need to make the TH contribution for 2015 and 2016 plus lost earnings at this point.