Under Contributing the Safe Harbor Match

[Guest Thornton]

We took over administration this year for a safe harbor match plan. While doing the 2013 plan administration, we discovered that the company has contributed a match of 100% on the first 3% deferred for at least 2011, 2012 and 2013 (this is all the infomation we have). Nothing more! Apparently, this is what their account told them to do, and the TPA disn't question it. The 2013 contribution will be made correctly. My question involves 2011-2012. The plan has 2 HCEs (both owners) and 5 NHCEs. Based on my research, there are two solutions:

1) Deposit the missing contributions for all employees, including the owner/HCEs, plus earnings. This involves approximately $22,000. Since the two owners get most of it, this may be the solution they choose.

2) Deposit the missing contributions to only the NHCEs plus earnings. This involves about $2,000.

The plan document does not exclude owners/HCEs from the match contribution, so, technically, #2 is a violation of the plan document. However, since the discrimination/failure involves only the owners/HCEs, what risk does this solution present? Your thoughts are welcome.

[ETA Consulting LLC]

The plan has appears to fail to follow the terms of the plan by failing to make the contributions. The plan has also failed the Safe Harbor requirement by failing to make the safe harbor contribution within 12 months following the plan year ends. Many failure, like these, are what I term a 'butterfly' effect. This is were a single misstep simultaneously violates more then one distinct rule. Failing to follow the terms of the plan is one thing, but failing to meet the safe harbor ADP/ACP requirements is another; not making an argument that one is more important than that other (as this would be useless). The point being, you have several violations which would appear to be corrected with a single fix; VCP.

Good Luck!