Top Heavy

[Guest durktracy]

Plan goes top heavy in 2006 triggering a TH contribution for 2007. TPA does not provide information to client until 6 weeks ago. Client did not extend tax return so corporate tax return due date was March 15th. TPA provides an allocation for the TH 3% contribution and also provides an allocation for a match contribution of 25% up to 4% of pay with the additional contribution due to satisfy the TH requirement so the client can make a choice.

It is my understanding that the due date of the TH contribution is vague. Based on the ERISA books one should use the deduction deadline (March 15th in this case) or the 415 deadline (April 15th in this case).

It is my belief that the contribution is late and that the client should contribute lost earnings on the deposit. The contribution would be deducted on their 2008 return, not the 2007 return because it was not timely deposited for that deduction. It is also my belief that the client should just do the 3% contribution and not the match with the additional amount to satisfy the TH requirement. Correct me if I am wrong but I believe that because the match does have a definite due date and they did not deposit the match by that date they should just do the straight 3% contribution. It would have been a different story had they already deposited the match and just had to make up the difference for the TH requirement because match can be used to satisfy TH requirements.

[Lou S.]

It has been a while since I looked at this issue but last time it came up I thought you had 12 months to make the T-H minimum contribution though if made more than 30 days after the due date of the contribution for deductibility for 2007 (4/15/08 in your example) then it is 2008 415 annual addition.