PSP Contribution after the 8-1/2 month deadline

[flosfur]

Based on the intentions of a PSP sponsor to contribute $X for 2002, say, Form 5500 and participant account statements were prepared and mailed to the sponsor with the express instructions to file those forms only after the $X contributions have been deposited which should be no later than 9/15/03. The CPA also prepared the corporate tax returns on the same understanding.

In November of 2003, it transpired that the PSP contribution was made in mid-October 2003, a month after the 8-1/2 month deadline for the 2002 contribution.

Other than the tax deduction issue (that is for the CPA to worry about) what are the various implications for Form 5500 and employee account balances @ 2002 as well as the contributions planned by the employer for 2003.

[mbozek]

What 8 1/2 mo deadline are your referring to? PS plans are not subject to the minimum funding standards of ERISA. The 8 1/2 month deadline under the IRC for ps plans is for the tax deduction. If the contribution is made after the time for filing the tax return with extensions it is deductible in the year it is made. You need to review the plan document to determine what effect there is on employee account balances, e.g., when is employer required to make a contribution to the plan. There could be a PT if the employer failed to remit the contribution by a date that was required under the terms of the plan.

[flosfur]

There would have to be some deadline for making the contribution so it is deemed made for a particular year for Form 5500 and S415!?

Consier a one person profit sharing plan. Sponsor contributes $40k on 10/12/2003 and designates it for 2002. Can that be shown as receivable for 2002 on Form 5500? Can it be considered annual addition for 2002 for S415.

If it cannot be considered annual addition for 2002 then it will become annual additon for 2003. If that's the case, the sponsor cannot contribute anything for 2003 since maximum of $40k has been allocated already!

[Guest rhp]

Putting the deduction issue aside, the contribution can be allocated in the prior limitation year (2002) if it is made to the plan within 30 days after the employer's 404a6 deadline for 2002 and is designated as being for that year (2002). 1.415-6(b)(7)(ii)

[jkharvey]

What a timely question. I have a very similar issue. Any suggestions on this one?

The ER made the 401k deposits timely. The ER match was computed using a formula that was the ER's usual formula from prior years (25% of deferrals). The ER did not actually deposit this full amount by 12/31/2001 (2001 PYE). The valuation was prepared using this formula and a receivable was set up for the difference. The ER was eventualy bought out by a larger company and the plan was then terminated in 2002. The ER never put in the additional match contr. for 2001.

The only match contributions made for 2001 were amounts made directly to some of the individual segregated accounts during 2001. These amounts, for the most part, were the 25% of deferrals and were made at the same time that the deferrals were deposited. The overall ER match, therefore, is not the same percentage of deferrals for each participant. ADP and ACP tests are met if only the actual match deposited in 2001 is considered.

I don't see how an ER match that isn't deposited until more than 2 years later can be considered an allocation for 2001. Outside of the income tax deduction issue, what are the problems involved w/ leaving the allocation of the match contributions as they were actually made? Does this make sense?

I have considered the alternative of taking the entire amount that was deposited and reallocating to all participants as a discretionary match based on elective deferrals to total elective deferrals. Problem here is that since the $$ went into segregated accounts, some people would need to have money removed from their accounts and have it given to other accounts.

Thanks

[mbozek]

See rev rul 76-28- all employers are taxed as cash basis taxpayers for deduction purposes. Contribution is deductible in tax year it is made or can be deducted for prior year if made by date for filing tax return with extensions.

[GBurns]

The questions asked were:

By flosfur:

"what are the various implications for Form 5500 and employee account balances @ 2002 as well as the contributions planned by the employer for 2003."

By jkharvey:

"what are the problems involved w/ leaving the allocation of the match contributions as they were actually made? Does this make sense?"

Both stated that the employer's deduction or deductibility was not an issue..."Outside of the income tax deduction issue" and "Other than the tax deduction issue (that is for the CPA to worry about)"

[mbozek]

Isnt the failure to make the er matching contribution a Prohibited transaction, i.e, a loan of plan assets to the employer which triggers the 15% excise tax? The liability for the tax would be assumed by the buyer if this was a stock purchase.