Discretionary PS contribution allocated but not made. What are options

[Guest Doreen Barrett]

Client signed Resolution indicating a PS contribution for 1998. Contribution was never made. Annual report was prepared and statements delivered to participants. A subsequently terminated participant received a distribution including the 1998 "designated" contribution.

Employer is financially unable to make contribution. Can employer revise the 1998 annual report and deliver amended benefit statements to participants? How does the plan handle the terminated non-key employee who received the "designated" contribution?

The 1998 5500 does indicate a receivable employer contribution; no deduction was taken on the 1120.

[John A]

IMHO:

1) Employer not only can revise the 1998 annual report and issue amended benefit statements, but has to do just that.

2) The plan will need to go through APRSC or another IRS correction program due to the employee who received a distribution based on the mythical contribution. My guess is that the correction would be first to request the overpayment back (good luck), and then to put the other participants in the position they would be in had the overpayment not occurred. See the recent IRS guidance on correction programs. I am not sure about the deductibility of any contribution the employer would have to make to restore the overpayment.

3) The employer will have to file an amended 1998 5500.

Since this plan is a profit-sharing plan and time is past the 8 1/2 months after the end of the plan year, I do not believe the employer could choose to make the contribution even if the employer wanted to.

Did I miss anything?