2003 employer contrib receivables not paid in 2004.... just caught situation

[Guest LTurner]

the safe harbor contribution plus discretionary profit sharing calculated for 2003 was handled by accountant as a payable (which is ok) and told TPA it would be paid in before 3-15-04. Now it appears this payable was overlooked and just now noticed it still on the books, and of course never paid in.

what is to be done? can employer just send in contribution anyway? should there be a reasonable interrest rate added to the contribution? is this something that needs to go to correction? (and which one, if so)

[Tom Poje]

1.401(m)-2(a)(5) would hold if a match is not deposited within 12 months of plan year end then it may not be taken into account for the ACP test but instead be tested under the a(4) rules (that is, as a nonelective contribution- and not only that, but as if they were the only nonelctive contributions) There is a similar rule for deferrals. Since the safe harbor rules cross reference these reg cites(see 1.401(k)-3(h)(1), I would conclude the SHNEC and SHMAC (though required to be made under terms of the document) could not be used to satisfy the ADP or ACP test.

Thus you would have to test and pass the ADP and ACP test, plus also test the safe harbor as a nonelective ...hopefully one wouldn't get into a required minimum gateway!

the self correction program(section 3 of Appendix B talks about earning adjustments, whenever the appropriate correction method for an operational failure is needed. since the safe harbor was not deposited timely, that would seem to be an operational failure.

of course, then it seems as if you have the possibility of an ADP failure, and corrections need to be made for that as well.

[E as in ERISA]

It's potentially a prohibited transaction -- a loan from the plan to the employer. Similar to late 401(k) deposits.

[mschwechter]

I don't know that I agree with the above responses. If the Safe Harbor is a PS safe harbor (not a match), I think it can still go in this year. I think the only thing you have to watch out for is the 404 limit, since potentially you are making 2 deposits in 1 year. As long as you are below the 25% 404 limit, and the proper participants get both years allocations, I don't see the problem. If the safe harbor is a match, I guess I agree with the match not being deposited as potentially being a prohibited transaction.

The bigger problem may be that the employer took a deduction for a contribution not made timely. Corp returns should be amended.