When is the contribution actually made?

[richard]

I'd like the thoughts of our esteemed reader group on when do you considere a contribution to actually be made.

This affects two areas. For contributions made near the tax filing deadline (plus extensions), is it deductible for the prior year. And, for defined benefit plans, what date does the actuary put on the Schedule B.

Several possibilities that I could think of:

1. The client wire transfers the contribution on date X and it is posted on date X. (duh, this is simple).

2A. The client dates the check as date X, gives the check to the broker on date Y (Y usually equal to X), and it appears on the brokerage statement (i.e., the broker posts the check) on date Z.

3A. The client dates the check as date X, mails the check to the broker on date Y (Y usually equal to X), and it appears on the brokerages statement (i.e., the broker posts the check) on date Z.

2B. Same as 2A except substitute "bank"

for broker.

3B. Same as 3A except subsitute "bank" for broker.

Thanks

[david rigby]

Let's not make this harder than necessary.

For this actuary, the date of contribution for the Schedule B is based on whatever source of information I get. If the plan sponsor gives me the date and amount, that is what I use. This is preferable because it affords the opportunity to check the bank/trustee statement to confirm that the actual deposit is what is expected.

Some plan sponsors do not specify such information, instead preferring to let me read it from the trustee statement. If that amount is not what I expect, then I call to confirm. If the posting date is later than the due date, or different than expected, I call to confirm.

Note that sometimes this reveals a mistake of posting, such as the trustee posting a company contribution to a DB plan account when it should have gone to the DC plan account, or vice versa, or a similar mistake with a benefit payment. The telephone is quite valuable in such cases.

As far as the Q about due dates, normally a contribution is made FOR a particular plan year. It may also be noted as for a particular tax year. If a sponsor mails the contribution on September 15 (calendar year plan), obviously it will not be posted by the trustee on that date, but I record it as having been made on time.

When the plan year and the sponsor fiscal year do not coincide, it is a good idea to educate the sponsor about the importance of:

1. making the contribution at least a little ahead of its final due date, and calling you (the consultant) at that time to let you know, and

2. designating the plan year that each contribution applies to. If the sponsor has a history of "pushing the envelope" on due dates, careful communication is advisable.

This may (but not necessarily) give both the sponsor and the consultant some flexibility with regard to which tax year a contribution is deductible. Communication with the auditor (if applicable) is a good thing also.

[Guest Dook]

Let's make it even simpler!

The contribution is made by the company when the monies have become separable from the company assets. This is the date that the check is dated (assuming that this created a negotiable instrument), or the money wired. However there must be some level of logic applied. If the check was written and the company then sat on it for a month before mailing it did not become separable when it was written!