When are SH Employer Contributions Due

[Guest JHLUBB]

I'm working with a 12/31/2010 plan yr-end with a SH Matching contribution that is quite large. The ER is asking what the latest date is they can fund the contribution (without penalties/interest/fines, etc).

I know for deductiblity purposes, it has to be funded by the 404(6) extended due date 9/15/2011 - however, I believe they have until 12/31/2011 (12 months after) to make the contribution for 2010. They would deduct it in 2011 but what is the consequence if they don't actually make it by 12/31/2011 . Obviously I've explained to them the mandatory/required nature of a SH contribution but they are really strapped for the cash at this point - VCP may be an option but that would just cause a bigger cash flow issue with further fees/penalities and lost earnings to make up.

I think the latest date is 12/31/2011 but I'm wanting someone to weigh in on that date.

[Guest Sieve]

If the SH match is calculated based on payroll compensation (or compensation less than annual compensation), then the contribution actually is required to be made by the end of the following quarter (Treas. Reg. Section 1.401(k)-3(a)(5)(ii)).

Otherwise, you are correct that the contribution must be made by the end of the following year or it cannot could for purposes of passing ADP (see Treas. Reg. Section 1.401(m)-2(a)(4)(iii)). If not made by then, the match cannot be part of the SH ADP free pass (see Treas. Reg. Section 1.401(m)-2(a)(5)), and the plan is potentially disqualified since it contains a nonqualified CODA (& therefore must pass 401(a)(4) nondiscrimination) (Treas. Reg. Section 1.401(k)-1(a)(5)).

So, you'll have to make the contribution at some point, either through VCP or as part of audit CAP, no doubt as a SH contribution. Too bad you didn't know in time to cease the match some time in mid-year and cut costs (Treas. Reg. Section 1.401(k)-3(g)).

[Guest JHLUBB]

Thanks for the reply. It is an annual contribution and not "per pay period" so the 12/31/2011 should be the drop dead date. We did a projected match calculation before the SH was put in place and the actual amount is pretty close to the original estimate. However, the client didn't take our recommendation to set aside the funds each month to build up the cash needed and now they are in a bad spot. Again, thanks for confirming my comments.

[Kevin C]

Do you want the 2010 SH contribution to count as annual additions for 2010 or for 2011? If the deposit is made in December 2011, it will count as 2011 annual additions. That will cause a problem if anyone who received the SH contribution termed in 2010. You should also check your plan document. It may say that the employer contributions are due by the due date for the employer's tax return including extensions thereof.

1.415©-1(b)(6)(i) (B)Date of employer contributions.—

For purposes of this paragraph (b), employer contributions are not treated as credited to a participant's account for a particular limitation year unless the contributions are actually made to the plan no later than 30 days after the end of the period described in section 404(a)(6) applicable to the taxable year with or within which the particular limitation year ends. If, however, contributions are made by an employer exempt from Federal income tax (including a governmental employer), the contributions must be made to the plan no later than the 15th day of the tenth calendar month following the end of the calendar year or fiscal year (as applicable, depending on the basis on which the employer keeps its books) with or within which the particular limitation year ends. If contributions are made to a plan after the end of the period during which contributions can be made and treated as credited to a participant's account for a particular limitation year, allocations attributable to those contributions are treated as credited to the participant's account for the limitation year during which those contributions are made.