Owner PS/Match/SHNEC deducted but not deposited

[Guest notapensiongeek]

I came across a 401(k) Profit Sharing Plan with 3 eligibles (2 are the owners) where we calculated the recommended maximum contribution for 2006 (required 3% SHNEC, discretionary PS-integrated allocation & discretionary Match) and they deposited the staff's portion of the ER contribution by the due date of their tax returns but they did not deposit the owner's portion (they still have not done it). They took the full deduction on the company's tax returns. Corp is the plan sponsor, and each owner is a separate sole prop that co-sponsors the plan.

I believe the companys tax returns have to be amended. They can only take the deduction for what they put in timely, correct?

If they put in the remainder of the contribution due for the 2006 plan year now, can they can take the deduction in 2007? As long as total eligible comp for all employees (calculated SEI + W-2's) support the total deduction...

Any excise taxes to deal with on this? Any other issues I am forgetting?

Any input would be greatly appreciated.

Thanks!!

[Jim Chad]

Quick reminder: Remember Section 415 limit for current year if they want to put in any money for this year.

Also, Since part of the contribution not made was a Safe Harbor contribution, the status of the deferrals and ADP testing may be a problem.

[Guest CinC]

"Also, Since part of the contribution not made was a Safe Harbor contribution, the status of the deferrals and ADP testing may be a problem."

Sorry, this is not responsive to the OP's questions, but to try to take one issue off the table: The OP says the contributions were made for the staff, which sounds like only 1 person, who presumably is an NHCE. Safe harbor contributions are only required to be made for NHCEs, so if the owners are HCEs, the above should not be an issue, should it? Of, course, if they're not HCEs, you're right.

[Kevin C]

The safe harbor contribution is required to be given to everyone the plan document says will receive it. Failure to follow the terms of the plan is a qualification issue. I would look at the IRS correction programs for guidance.

That's an interesting idea that failure to deposit the HCE safe harbor contributions might not ruin the safe harbor. But, wouldn't you be violating the SH notice content requirement if the HCE's don't get their safe harbor contributions? Each eligible employee has to receive a notice that accurately describes the contributions under the plan. If the SH actual contributions don't follow what was described in the notice, I don't see how you could argue that the notice language accurately described the safe harbor contribution.

[Guest notapensiongeek]

In this case, the plan document and corresponding Safe Harbor notice clearly state that the Safe Harbor contribution is allocated to all eligible employees (HCE's and NHCE's).

So the NHCE received his/her PS allocation but did not defer, so didn't receive a discretionary match. Only the owners deferred and got match. Could we, at this point, revise the allocation for the year and only do PS / SH since we're amending the tax returns anyway? We'd have to amend the 5500, of course.

I don't think we can't take away the PS from the staff member at this point, so they're stuck with the PS (and SH, of course).

Thanks for your responses, much appreciated.