Safe Harbor 401(k) Contributions

[Guest DTrom]

If a Plan under contributes their 3% nonelective contributions, can they self correct under SCP? If so, are they within the correction time period if they correct within two years of the plan year in question?

Since the Safe Harbor is an ADP issue, is it a stretch to say that the correction period is the two year period beginning after the 12 month correction period provided for section 401(k)?

Thanks for any insight.

[MWeddell]

The undercontribution will violate the terms of the plan document, and the IRS regards that as a qualification issue. Yes, it should be correctable under the SCP if all of the various conditions in the Rev. Proc. are met.

I'm not sure about when the two-year period for self-correcting significant errors would start. A possibility you didn't mention is from the end of the 404(a)(6) grace period for making the contribution.

[Guest DTrom]

Thank you very much.

[Guest DTrom]

One thing extra to add...

Similar questions regarding failure to contribute Safe Harbor nonelective contributions that I saw mainly dealt with the entire contribution not made.

In this case the employer changed payroll companies during the year and miscalculated the compensation figure used to calculate the 3% contribution. The total required contribution amounted to approx $30,000, of which the plan sponsor had timely contributed approx $27500.

In the other cases, where none of the contribution was made it was suggested that the ADP would need to be run for the plan year in question, in addition to the SH contribution being made.

In this case, do you think that the miscalculation of compensation would result in the need for the ADP test to be run, assuming the plan sponsor made the additional contributions, adjusted for earnings?

Thanks again.

[MWeddell]

Short answer is I don't know.

Your question is not "what do the rules say?" but instead is "what does the employer do once it has already broken the rules?" That's a harder type of situation to research if you think about it. I've not had Voluntary Compliance Program experience with your specific issue so I don't know the answer. You might want to check the ERISA Correction Book by Panel Publishing or scan carefully Rev. Proc. 2003-44 or hope someone else responds to your post.

[Guest DTrom]

I'm sorry for not thanking you sooner, I must not have requested an email notification when this thread was responded to.

I appreciate your input!