Discretionary Match

[Guest jjren]

Can you declare a discretionary match to apply to deferrals in the prior plan year?

In 2009, Company A and Company B are affiliated employers both participating in Plan A, which is a safe harbor 401(k) with an enhanced match of 100% of deferrals to 5%. Plan also permits discretionary match - discretionary percentage of deferrals to a discretionary cap.

Plan A permits each employer to allocate contributions to only its own employees. (coverage testing performed)

Mid 2009, Company A has financial trouble, so Plan A suspends safe harbor match. Company B declares a discretionary match of 100% of deferrals up to 5% of comp per payroll period to make up for safe harbor.

In 2010, things look better and company A wants to make up the match to its employees. Is there any prohibition to declaring a discretionary match for 2009 now? They have until end of 2010 to deposit the match and up to the due date of the tax return to contribute it in order to deduct for the taxable year and 30 days after that to include it in that year's annual additions.

ACP testing would be rerun including the discretionary contribution, and is projected to pass.

Is there any formal or guidance from IRS that says you need to declare a match to apply to Plan Year X before the end of the Plan Year?

[Jim Chad]

Probablyyes if an extension was filed for the employer tax return and the document allows it.