accrual vs cash basis of accounting and reporting

[Santo Gold]

If an employer uses a cash basis for company accounting purposes, does that mean that the company's 401k plan must also use a cash basis? For example, if the company decides to make a $20,000 profit sharing contribution in Feb. 2006, because it is using cash accounting, it would show the $20,000 on the 2006 tax return. Would that mean the employer could only allocate the $20,000 based on 2006 wages (pro-rata allocation). And since the 2006 wages will not be known until 12/31/2006, they could not be allocated until probably 2007?

[Archimage]

No, there is no requirement that the accounting for your plan be on a cash basis.

[rcline46]

Not only that, but even tho the co is on a cash basis, qualified plan contributions can be accrued!!! That came in with ERISA in 1974, so your $20,000 contribution in 2005 for 2004 can be deducted in 2004.

[Santo Gold]

Thanks to all for the help.