When does top-heavy minimum contribution have to be deposited?

[KateSmithPA]

I have two questions concerning the top-heavy minimum contribution. First, what is the deadline for making the contribution? Is it the same as any employer contribution. That is, does it have to be made by the time the employer files their federal income tax return? Secondly, what if the employer already filed their tax return but still has to make the top-heavy contribution for that plan year? Can the employer still get a deduction for the contribution?

[Guest John Sample]

Contributions may be deducted by the employer for a prior taxable year if payment is made no later than the due date (including extensions) for filing the employer's federal tax return.

The contribution must be allocated as if it were made on the last day of the plan year (assumes that the plan year and the tax year are the same).

Note, if the employer gets an extension for their tax return, the full extension period is avaialable for making the contribution, even if the company files the return before the end of the extension.

I believe that they could deduct the contribution in the year made instead of the prior year, but they have to watch limits closely if they make and deduct another contribution for this plan year and also deduct it in this tax year.

[stevena]

The corporate tax filing deadline is the time limit for deciding what the deduction will be (if discretionary, of course)...but funds do not " need" to be deposited by then.

I do not see anywhere where an actual deadline for depositing of funds is stated

Although I imagine grossly untimely depositing could cause fiduciary liablity problems, which are another issue entirely.

[david rigby]

There absolutely is "an actual deadline for depositing of funds".

The deadline for making a contribution to a qualified plan is 8-1/2 months after the end of the plan year. Top heavy status does not change that.

With respect to the timing of contributions for purposes of deduction, see first sentence above by John Sample. Note that plan year and company fiscal year can be different.

[R. Butler]

Does the 8 1/2 months apply to contributions to all qualified plans or to just to those subject to minimum funding standards? I thought it only applied to those plans subject to minimum funding standards.

I do agree that for deduction purposes the contributions must be made by the due date of the employer's federal tax return including all valid extensions.

[stevena]

I think the question was when does the employer HAVE to deposit funds. I think (although I could be wrong) the answer is that there is no deadline.

Whether the deposit would be tax deductible is another issue entirely.

And I also think the 8 1/2 month rule is for minimum funding only.

But I am interested in others responses as well.

[R. Butler]

There has to be a deadline, otherwise you would never really have a failure to make the top heavy minimum. I am fairly certain that the top heavy contribution would have to be made by the last day of the year following the year for which it is required (i.e. top heavy contrib. for year end 12/31/99 would have to be made by 12/31/00). This is the same rule we use for QNEC's.

[stevena]

I will tell you why I have this idea...because this specific question was asked in 1996 at an ASPA conference directly to the DOL official. The answer was that there was NO SPECIFIC STATED RULE on the depositing of the top heavy required contribution, however, he did specifically say that it was "not a 412 issue..." so would not be required to be deposited the same as minimum funding. His thought was that the deposit "probably should be deposited by the 404(a)(6) deadline because it is a qualification issue" ...which (I think??) is the 5500 deadline (incl. extensions), right?.

[david rigby]

Not quite. IRC 404(a)(6) states

"(6) Time when contributions deemed made

For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)."

The tax filing of the plan sponsor is based on the sponsor's fiscal year. The 5500 filing is based on the plan year, which is not necessarily the same as the fiscal year.

[MGB]

Note, too, that the "(including extensions thereof)" only applies if an extension is actually filed for.

For example, if the tax return is filed by the original due date, the contribution needs to made by then, also. You cannot make use of the extension period unless it is applied for.

[rcline46]

I think y'all dancin' here. Funny thing, there is NO deadline in the regs or law. Failure to deposit is a document violation disqualifying the plan.

Our practice is to give 1 year (ie 12/31 following 12/31 of year in which T/H is due), then resign with prejudice from the case. That means whoever is then selected by the client and who asks us for information gets notified that a T/H contribution has not been made.

[stevena]

Thats what I said...there is no deadline, that I can see.

Not that I would advise that to a client.

But technically speaking, no deadline in the regs.

[R. Butler]

I don't want to belabor this too much, but if there is no deadline than how can than there be a failure to provide minimum top-heavy benefit to non-keys? If there is no deadline than there is no failure to provide minimum benefits.

Note that 2001-17 Appendix A clearly implies that there is a failure to provide....

[Guest JAREL]

I guess I have to interject my own views on this. I have taken the approach that to be counted as a Top Heavy contribution for a year, the amount must be allocated to accounts within that year. Therefore, it has to be an annual addition. Therefore, the TH contribution must be made no later than 30 days following the deadline referred to in 404 for deduction purposes. But, that's just my opinion, and for lack of a more reasonable answer, I'm sticking to it! By the way, this date was acceptable to IRS under an old VCR application that required we add investment earnings to the date the contribution should have been made. . . for what it's worth.

[John A]

http://www.benefitslink.com/cgi-bin/qa.cgi...d=144&mode=read

Just FYI: The above Correcting Plan Defects Q&A seems to indicate that the appropriate due date to use for Rev. Proc. 2001-17 purposes is the due date of the tax return, including extensions. However, no cite is given, and I still think there are good arguments for using:

1) Due date of the tax return, including extensions

2) Annual addition limitation deadline (30 days after)

3) 12 months after end of plan year (like QNECs)

4) There is no deadline - NO formal written guidance exists

5) If a deadline is explicitly stated in the document, it would overrule any of the above (if it was more restrictive - the plan document could not extend the time).

I think the above also applies to a certain extent to other nonelective contributions - required or discretionary match, and profit sharing.

Are there any penalties for missing the "deadline?"

Anyone know why the IRS and DOL have never provided an official, formal, written answer to what the deadline is?