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If a 401(k) plan fails ADP, distributes the excess contributions as required to correct the failure, and in the process HCEs forfeit matches attributable to the distributed excess contributions, as they must, can the employer turn around and provide taxable (W-2 compensation) bonuses to the HCEs with the match forfeitures, for example exactly in the amounts of the individual match forfeitures, without violating the anticonditioning rule of Treas. reg. sec. 1.401(k)-1(e)(6)? Arguably this is OK, because the bonuses are not conditioned on the employee's making or not making the elective deferrals, but rather are conditioned only on some of the elective deferrals failing ADP, since in order for the bonuses to be paid, in the amounts they are paid, both (a) the HCE must have made the elective deferral, and (b) a portion of deferral must be distributed to correct an ADP failure. On the other hand, the employee would not receive the bonus if he or she had not made the deferral to begin with, albeit that the employee did not know at the time he or she made the deferral whether a portion would be returned to him or her as excess and result in a cash bonus rather than a 401(k) match. The reg says that the conditioning can't be "direct or indirect" (emphasis supplied), so maybe what I'm describing is "indirect" conditioning. On the other hand, what is being proposed here is very similar to what you can do with matching in a nonqualified spillover plan matched to your 401(k) plan, although the PLRs blessing those seem to be based on part on the language in 1.401(k)-1(e)(6)(iii) specifically dealing with nonqualified plans, so maybe they are distinguishable on that basis, and of course they are only PLRs anyway.

Hello, I typically do the annual match calculation and lump sum contribution for my company in late January in the year following the plan year, but the company has a lot of expenditures in Q1. They have asked if the match could be paid later in the year like, for example June 30. I offered April 1, but they declined that date as it's too close to Q1. They countered with April 30 or later, like June 30. I believe a match paid after April 15 would mess up compliance testing, am I right? Especially 415 testing, which is an issue for my company as we do after-tax voluntary contributions/Roth conversions. I will offer to do quarterly matches with a last day of the quarter requirement. Right now we have a last day of the year rule. By going quarterly it will increase costs, but spread out the payments like they want. What does the community think? Is a match payment after April 15 not a feasible idea? Besides 415 testing, what other tests are impacted so I can defend my position? Thank you!

The plan sponsor for a law firm 401k plan is set up as an LLC taxed as a partnership - equally owned (1/3) by three different Affiliated/Participating employers all taxed as an S-corp. The LLC employees a few non-owners, and each of the 3 S-corp partners are 100% owners of his or her respective firm. Since the three affiliated, participating employers (S-Corps) pay their owners W-2 compensation, the W-2 compensations are eligible for deferrals and contributions for the plan. For Pre-tax deferral contributions, payroll deductions are withheld for the owners (W-2 comp) and funded by the individual S-corp. It's a Safe Harbor match plan with a Plan Year/annual determination period for the match. Since the pre-tax deferral contribution will be deducted via payroll and funded from the owners' individual S-corp, does the corresponding Safe Harbor match need to also be funded from the individual S-corp. - or does the match need to be funded by the LLC taxed as a partnership?