Safe Harbor contribution reduction by prior excess

[Guest crosseyedtester]

A plan had an excess Safe Harbor contribution deposited in 2000 which is waiting to be allocated.

In the 2002 plan year, there is a 3% Safe Harbor contribution which is the only contribution for the year besides 401(k).

Can the deposit for that 2002 Safe Harbor contribution be reduced by the excess amount from 2000?

Thank you.

[Blinky the 3-eyed Fish]

More details please. Why was the contribution in 2000 not allocated? Was it for the 2000 year and contributed in 2000? Is there a profit sharing component of the plan outside the safe harbor nonelective contribution?

I ask this because it's my understanding that contributions made for a DC plan during the year must be allocated. See Rev. Rul. 80-155.

[Guest crosseyedtester]

Hi Blinky,

Thank you for your response.

The client made the deposit in 2000 before the participant eligibility was analyzed. When it was determined one employee was not eligible for the contribution, that amount was considered an excess but remained in the trust as a reconcilable item.

No profit sharing contribution has been made to this plan since inception, although it is included as a discretionary contribution type.

Any thought on how to treat that amount?

Thank you,

cet

[Blinky the 3-eyed Fish]

Was there a 2001 safe harbor nonelective contribution? If so, why wasn't the overdeposit in 2000 used to for the 2001 contribution? I am not saying that would be correct, just wondering why the 2000 overdeposit continued to be in the plan.

[Guest crosseyedtester]

Hi Blinky,

There was a Safe Harbor Contribution for 2001 and it is not clear why they did not use it then.

Still wondering if it can be used towards the 2002 Safe Harbor Contribution.

Thanks,

cet

[Earl]

If the safe harbor contribution for 2000 was $100 and the client deposited $105 in 2000 then there was a $5 Profit Sharing contribution for 2000, whether the client intented to make a Profit Sharing contribution or not. Like blinky says you have to allocate all the money in the Trust (unless you hit 415 etc...)

If the extra $5 was not deposited until after the year (in 2001) then there is $100 for the 2000 SH and $5 for the 2001 Safe Harbor and the same model works for the 2001 SH contribution.

If the money went in in 2000, I would bet the client deducted it on the 2000 return. How could you not allocate it.