Home builders unable to fulfill Safe Harbor obligation

[Brenda Wren]

We had several clients this year that could/would not make their Safe Harbor contribution commitments by the extended due date of their tax return. Other than the obvious lost deduction, what are the consequences to the employer and the plan if the contribution is made by 12/31/07? What if the contribution is not made by 12/31/07?

I would think that as long as the contribution is made within 12 months after the plan year that all is well...deduction could be taken for 07...plan still qualified...no ADP testing required.

But if the contribution is not made by 12/31/07 the plan would be disqualified.

Assuming plan is not terminated, would ADP testing apply and if so, at what point?

[Bird]

Yup, 12 months to make the contribution and you still meet SH. Any contributions made after 30 later than the due date of the tax return are annual additions for 2007, not 2006. I agree that you can't fall back to ADP testing; plan is DQ'd if contribution is not made at all. But I think you could self-correct by making the contribution in 2008, with interest.

[Guest dbvail]

Hmmm, seems to me that if safe harbor deposit is not made in time then it is still due, but that all ADP returns are required as well. This is ugly at best. If a plan fails ADP and the refunds are not made timely then they still must be made and a like deposit QNEC must be made. And they still owe the SH. How much should they suffer? Any thoughts?