Profit Sharing Contribution 2 years late

[Craig Schiller]

Employer had signed a directive for the 2012 plan year to contribute $70,000. Due to confusion about $30,000 in salary deferral contributions, only $40,000 was made in 2013.

Can the company make the $30,000 now in 2014 and still count it for the 2012 plan year? Assume the plan document does not have any language that otherwise indicates when a contribution must be made for the plan year. For example, it does not state that the contribution must be made by the due date of the employer's tax year.

The allocations will be considered part of the 2014 limitation year so will not exceed the 2014 maximum limitations.

I know that the amount deductible for 2012 is only $40,000. But I don't see anything that prevents this from being allocated to the 2012 plan year as long as the 2014 deduction and 415 limits are not being exceeded otherwise.

Thanks,

Craig Schiller

[QDROphile]

Plan terms probably prevent allocation in accordance with 2012 compensation at this point. To illustrate in the extreme, if someone terminated in 2013, the plan probalby would not allow allocation of a contribution in 2014 to that account. I know you instructed to assume that the plan does not have any language that otherwise indicates when a contribution must be made for the plan year, but you need to test that assumption very carefully and tose particular words are no the end of it. You should check to see if allocation according to 2013 or 2014 compensation is a close approximation of what is intended.

[Flyboyjohn]

Under the facts presented I see no problem with making and allocating a 2012 profit sharing contribution in 2014 (nor for that matter a contribution for 2011, 2010, etc.)

[ETA Consulting LLC]

You've seemed to account for each issue. 1) Contribution will be deducted in 2014 (year of deposit). 2) Contribution will apply against 415 limit for 2014 even though it is allocated for 2012 (and missed the 2012 funding deadline for having contributions counted in the 415 test). 3) Will continue to pass non-discrimination for the 2012 year.

So, your question was not whether there would be an acceptable reason why the failure to contribute was due to an oversight that could lead to those amounts counting against the 2012 415 limit.

FWIW, I, too, agree with your analysis.

Good Luck!

[Kevin C]

What is the plan's PS allocation method? The only way I can see you possibly getting there is if it is new comp with everyone in a separate group. If it has a 401(a)(4) safe harbor formula, the plan will allocate the contribution based on current year compensation, so you won't be able to allocate now using 2012 compensation.

You are more than 30 days beyond the due date for the 2012 company tax return, including extensions, so if this is done for the 2014 plan year, it would be annual additions for 2014 {1.415©-1(b)(6)(i)(B)}. Annual additions for the plan year are treated as contributions for the plan year for discrimination testing {1.401(a)(4)-1(c )(2)(ii)}. I don't see what you want to do fitting one of the safe harbor formulas, so you would be under the general test and would be testing this for 2014. It would be the same if they try to make it a 2013 allocation based on 2012 compensation.

You say 415 isn't a problem for 2014, so apparently everyone who was entitled to a contribution in 2012 is still employed and eligible for a contribution in 2014. Otherwise, zero comp in 2014 means zero contribution.

I'll second QDRO's suggestion to look at additional allocations for 2013 or 2014 to see if they get close to what they want.

[Craig Schiller]

Hi all commenters:

I learned one new point from Kevin C that since the contributions are annual additions in 2014, they have to also pass the discrimination testing for 2014. I thought that since the contributions would be treated as pertaining to the 2012 plan year, all discrimination testing would be done for the plan year in which the allocations were for.

I agree that if the person receiving an allocation in for 2012 were not employed in 2014, that would violate the 2014 Section 415 limits, just as if the person were employed and the allocation were greater than 100% of the person's compensation.

I also think it is a very good point that if this had a safe harbor formula, an allocation in 2014 for the 2012 plan year would violate the plan document which defines allocations always in terms of current year compensation. Here everyone is in there own rate group.

I may have 2 hats to hang on if I handle this as a 2012 plan year contribution.

1): I can do this so that the total allocations pass 401a4 in 2014. This is a pooled account and the same people are still employed. Since they contributed 57% of the amount on the employer directive, I would treat that 57% as originally allocated to each person in the same ratio as the amounts on the employer directive. The rest, the other 43%, would be made up in 2014 but for the 2012 year. It is therefore going to a cross section of employees in 2014, not just the owner. If any additional contributions are needed to pass the 2014 401a4 test, those would go only to NHC's.

2): As a fallback, this would still probably be an allowable self-correction under EPCRS. The directive specified that a contribution was intended. It can be demonstrated through e-mails we have copies of, that there was a misunderstanding of what was contributed, augmented by poor communication by one of the employees of our company. There is a real risk that this is not insignificant, and would therefore need to be submitted under VCP to be covered under EPCRS. But at least I have #1 to fall back to. If this were considered an acceptable correction under EPCRS and not a significant violation, this would be a 2012 annual additions, and would be part of the 2012 numbers and testing that we did.

Thanks for the comments.

Craig Schiller