Contribution Funding

[Guest Jeff Underwood]

One of my clients would like to "pre-fund" employer contributions to a cross-tested plan. The plan provides that the discretionary contribution is "an amount as specified annually by the Employer" and will be allocated "to each eligible Participant within a classification group". Does the fact that the total amount of the contribution has not yet been determined preclude funding some portion of the contribution? Further complicating matters is the presence of 1000 hours/last day requirements.

The plan contains a 3% safe harbor non-elective formula, so I am pretty sure that the client could fund that portion throughout the year. Since we know that the gateway provisions will then apply to all eligible employees, is the client safe in funding an additional 2% throughout the year?

[Mike Preston]

To the extent the client pre-funds, there is a requirement to identify, when contributed, who the money is targeted for. That is, what group it is for. If this ends up being less then optimal after the end of the year, that's tough beans for the client. If they want maximum flexibility they should not fund more than the safe harbor minimum. But, there is no prohibition against pre-funding. It just limits the available options.