Late Deferrals and Match in Safe Harbor Plan

[Guest DTromb]

A plan sponsor does not deposit several payrolls of employee deferrals in the 2005 plan year. The error is not found until the beginning of 2006. The Plan Sponsor corrects the late deferrals using the DOL online calculator and is also submitting the VFC forms outlining the correction and well as paying the excise tax on form 5330.

In addition, however, the plan called for safe harbor match contributions to be made on a payroll-by-payroll basis. The safe harbor match for the payrolls in which the deferrals were not deposited was also not deposited. It is my understanding that the safe harbor matching contributions are also late, as they were not deposited by the end of the quarter following the quarter they were allocated.

Do the late safe harbor matching contributions also consititute a prohibited transaction requiring the payment of excise taxes (ie, the match was supposed to be made as of a certain date and was not and therefore becomes a loan to the company)? If yes, does the late match amount get entered on Line 4d of Schedule H and also requires the completion of Schedule G?

Thanks for any guidance.

[JanetM]

Normally since the match is the employers money there is no PT if contributions not made when employees get paid. Does your plan actually say the contributions will "post" each payroll or does it say they will be "calculated" each payroll?

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[Tom Poje]

my wild guess would be (of course) the contributions are required

the fact they are late per the quarterly payroll requirements implies to me that you would have to perform ADP testing - the lateness takes them out of being 'safe harbor', or makes them tainted or whatever.

just guessing.

[Guest DTromb]

Thank you both for your replies.

The document states that the safe harbor match will be allocated each payroll (no true-up).

It is my understanding that if the safe harbor match is to be allocated with each payroll then it must be deposited by the end of the quarter following the quarter it was allocated in.

I can't seem to find anything that describes the consequences of missing that deadline.

The employer missed the payrolls in 2005 (calendar year plan) and is correcting this month.

[Tom Poje]

the quarterly timing is required by 1.401(k)-3(c )(5)(ii).

I have never seen what happens if they are late.

so, I see 2 possibilities - you have to test (a wild guess), or you have to make up with interest from the date the quarter ends. (maybe that makes more sense)

[Guest DTromb]

Thanks Tom. The Employer has already done Plan B, ie make up lost interest, so I guess we will consider it corrected unless someone tells us otherwise. The Plan needs an audit for 2005 anyway, so we'll see if the auditors have a different opinion.

If they do I'll add what they say to this post.

Thanks again.