Late deferrals

[EBDI]

Plan Sponsor of a calendar year 401k plan deposits employee deferrals from the Dec. 2012 payroll once in Dec. 2012 and then again in Jan. 2013. In March 2013, he fails to deposit the employee deferrals which still haven't been paid. When determining the lost earnings, can I calculate it on the net amount due after subtracting the duplicate Dec. 2012 deposit from the missing March 2013 deposit? Would it be preferable to calculate the lost earnings on the entire amount that should have been deposited in March 2013?

[BG5150]

I would not net them together. You cannot pre-deposit deferrals.

Why was the duplicate deposit still in there? The funds should have been moved tot he suspense account and used to offset the check/wire of the next payroll.

[EBDI]

The funds are still there because he did not realize he had deposited it twice until I discovered it this week. Thanks for your opinion. That is what I thought too.

[Kevin C]

In most cases, the prohibition on prefunding deferrals in 1.401(k)-1(a)(iii) will prevent you from holding the duplicate deposit to use towards the next payroll. I agree it's a silly rule, but it is in the regulations. This is one of the situations that makes you miss the pre-2006 rules.

Unfortunately, you are beyond the one year period that the January 2013 extra deposit can be returned to the employer as a mistake of fact (if the plan allows it), so that isn't an option.

[EBDI]

Should I have the mistaken Jan. deposit forfeited since it can't be returned?

[Kevin C]

With it being deposited in 2013, not being salary deferrals and not being a receivable for 2012, it's an employer contribution for 2013. There is a prefunding prohibition for matching contributions, too, so you'll have to look at the deposit timing to see if it can be used towards the 2013 match, if they made one. If the timing doesn't work out so that you can consider it part of the 2013 match, it would end up being a 2013 profit sharing contribution.

[EBDI]

They did make an employer match at the same time they deposited the employee deferrals. Thank you so much for your advise. I will treat it as an employer profit share for 2013.