Delinquent Safe Harbor/Top-Heavy Minimums

[austin3515]

This article from McKay Hochman seems to suggest that an FAB takes the p[osition that delinquent employER contriubtions would constitute a PT. I had always that this outcome was limited to multi-employer plans. If a company is on the brink of bankruptcy and cannot fund the safe harebor it committed to, is this a PT? Assume the owner is not taking a paycheck, or is taking "living expenses" only.

http://www.mhco.com/Library/Articles/2011/...rib_111811.html

[ETA Consulting LLC]

You have good questions, but you're over-reading it. Everything is facts and circumstances. Just look at it like this: 1) Come "hell or high water", the employer has a responsibility (as fiduciary) to ensure each participant's rights under the written terms of the plan are enforced. This includes contributions, benefits (optional forms and all). When a plan has language stating that "if you work for the year, then you will receive this contribution from the employer in the amount of 'x' percent of your salary", then this becomes an entitlement that the participant "must" be given.

What the writeup here does is to explain how or why this may be a prohibited transaction. It is already a failure to follow the written terms of the plan plus a failure to enforce the employees rights under the written terms of the plan. A prohibited transaction would merely be another type of violation (which, in my opinion, is a bit overreaching).

You must give the contribution, period! The debate comes into play because the "mandatory" language in the document would make the contribution amount a "receivable" since it is not discretionary. Not making the deposit would then put the employer in the position of holding a plan assets outside the trust. I don't particularly buy it because a receivable is still a plan asset and is not in control of the employer (similiar to cash amounts actually withheld from employee pay). It's going to remain a receivable until it is replaced by another asset; cash. I think it is merely a failure to follow plans terms and also an ERISA 206 enforcement issue. I just don't buy the prohibited transaction, but appreciate the argument.

It'll play out over time.

Good Luck!

[Tom Poje]

a few years ago someone posted the following, so you never know how the IRS will respond in regards to safe harbor contributions.

a client who went into bankruptcy (which involved closing their doors, not a restructuring bankruptcy), the bankruptcy trustee suggested that the participants' safe harbor contributions be funded by forfeiting a portion of the owners' accounts (the owners agreed to this as well). They filed a 5310 with a copy of the court order that suggested the SH be funded as such. The IRS replied in less than 3 months and approved the method.

[John Feldt ERPA CPC QPA]

http://benefitslink.com/boards/index.php?s...st&p=207952

[Bird]

I think this falls under the "there's something wrong with every plan if you look hard enough" umbrella; they're just making the umbrella even bigger. (Not that it's ok to not deposit SH contributions; this would be just one more stick to beat someone up if they chose.)

As you note, this arose from a multi-employer situation. I think it's one of those things that isn't quite settled because in many situations, the trustee has no way of knowing about delinquent contributions.

I think you deal with getting the money in and put the PT issue at the bottom of the worry list.

[ETA Consulting LLC]

I think this falls under the "there's something wrong with every plan if you look hard enough" umbrella; they're just making the umbrella even bigger. (Not that it's ok to not deposit SH contributions; this would be just one more stick to beat someone up if they chose.)

I think you deal with getting the money in and put the PT issue at the bottom of the worry list.

Benefitslink could really use a "like" button.

[DMcGovern]

It seems like a PT would relate to when the monies are considered to be a plan asset. FAB 2008-01 is focused on salary deferrals because a deferral is defined to be a plan asset as soon as it can be segregated from employer assets. In my opinion, a safe harbor contribution would not become a plan asset until it is actually made; prior to that it would most likely be considered an employer asset. In this case, the employer doesn't seem to even have the funds available.

I'm not aware of any specific guidance on the failure to make the required safe harbor contribution on time. Rev. Proc. 2008-50 does provide a correction as depositing the contribution with earnings as soon as possible.