Simple 401(k) Matching Contribution

[Guest Dianes]

A client has a Simple 401(k) plan in place. They have choosen to make the matching contribution in order to comply with the Simple 401(k) requirements. However, they have not made the matching contribution for the plan year ending December 31, 2000 and do not have the cash to do so. If they do not ever make the 2000 matching contribution does this disqualify the plan?

What are the correction methods available to them if they are able to come up with the money at a later date and make the contributions?

[Cathy from Chicago]

The mandatory match does not have to be made by the employer until he files his taxes, including extensions. This should allow ample time. Should the match still not be made, my gut feeling is the plan would be disqualified and all deferral contributions subject to income taxes and penalties (only my gut feelings, keep in mind!)

[Guest Dianes]

This was my gut feeling also, althought I've not been able to find anything that documents failure to make the match as a disqualifying event.

The client filed his 2000 taxes on Sept. 15 and did not make the 2000 match on or before that date, so he is basically in trouble!

[Gary Lesser]

Failure to make a contribution may have state law implications. If the match is not made then all contributions should be reported in boxes 1, 3, and 5 on Form W-2 (or included in income is self-emploed). Best to give employees a notice that their contributions are (100%) excess contributions and must be returned (and so on, with gain).