Employer Contribution Overfunded

[Dazednconfused]

Employer funded a profit sharing very early and we noted that there were a couple of 'mid year' participants whose allocations were based on full year compensation but should have been from date of entry. We will move the overfunding amounts to Plan FF account and be used per plan document.

Lets say the ER funded $90,000 but should have been $87,000. What should be reported on 5500? Is it the $90,000 which the er claimed on their corp return? I am thinking that is correct since the amounts moved to FF and will be used accordingly. Thanks.

[Bird]

When you say "very early" do you mean soon after the end of the year, or during the year?

If deposited during the year, then IMO they are in fact employer contributions and should be allocated according to the terms of the document. If monies went to the wrong people because of a computation error, then those monies should be "re"allocated to whomever should have received them.

If deposited after the end of the year, then moving to a "holding" account should be ok, but don't call them forfeitures; they're not. They should at some point be allocated as contributions. And the correct employer contribution in that scenario is $87,000. The corporate return should be amended (although the accountant may decide it is not material). The alternative is to "re"allocate the excess $3,000 as above.

Keeping the $90,000 deduction and just setting the money aside and calling it a forfeiture is not an option, IMO.

[ESOP Guy]

Regarding the 5500 you are over thinking this issue. The question on the SF, I or H is about assets and liabilities. It doesn’t ask if about allocated assets and liabilities (can you have an allocated liability). So if the money was in the trust by the end of the plan year it is an asset. If it wasn’t in the trust by the end of the plan year and you don’t think it was a receivable then it isn’t an asset.

When it comes to the 5500 asset/liabilities it helps to think like an auditor not a plan administrator. To an auditor if the money is in the bank it is an asset. There might be a liability for that money if say a refund is due, or it is a pre-paid and so forth. The full amount is listed as an asset for the 5500 regardless if it is allocated to someone’s account or not.

Like always willing to hear a different opinion, but what I described has served me well for decades in this business, and fits the form’s instructions. It asks for the value of the assets, not allocated assets.

[Dazednconfused]

Thanks, yes the contribution was funded after the 2010 plan year in Feb 2011 on behalf of the 2010 ps contribution. So the $87,000 is the true contribution for 2010, and that should have been receivable to the plan.

The additional $3,000, can be used for the 2011 (since it was all deposited in 2011) and allocated at year end 2011, since wasn't due or in the plan as an asset for 2010 I guess I can 'ignore' for 2010 ye 5500 reporting and use the $87,000 as the true er contribution. Any thoughts on above process..

Thanks again all.