PS & SHNEC for 2012 not funded

[doombuggy]

I found out that one of my plans did not fund their 2012 ER (P/S and SHNEC) by 9/15/13. the owner had deposited $5500 out of the corporate account into his and his spouse's 401k brokerage account in August 2012 and in July 2013 they were told this wasn't allowed (not deferrals from salary). he was fine with that and we instructed the broker to move that money out and into the pooled account (plan only allows individual accts for 401k deferrals, trustee directed pooled account for ER $). Earlier this month I requested copies of all the brokerage statements for 2013 and found that this money was never moved. The client did deposit a check last August for the difference still due for the 2012 P/S and SHNEC, but I am short $11,000. The tax return was extended.

Where can I find the cite to correct this? I have told the broker that she needs to move that money asap (she was told to move it 3 times last year) and that Lost Earnings need to be made up on that money. From 9/15/13 for the P/S and 12/31/13 for the SHNEC? Does anyone know where on the DOL or IRS sites I can find info to forward to the broker on the correction? The bottom line is that she didn't do what she was supposed to do.

[Bird]

If I understand you, the money is in the plan, just not in the correct account? How are you accounting for the $11000 that is in the wrong account (or is it 5500)? If the money is in the plan but in the wrong account, we would show that money being owed/receivable, which nets to $0 on the plan's balance sheet. And we'd accrue a prorata share of the earnings and transfer the total amount to the proper account.

If the money is owed to the plan as a whole, and it is safe harbor money, then I'm pretty sure you can self-correct that in the year following the year it was due.

[Kevin C]

I read your question the same way Bird does, that the correct amount was deposited, but not in the correct account. If so, you should be able to self correct. The general correction principles in Rev. Proc. 2013-12, section 6 will guide you. The idea is to put the plan where it would have been if the error had not occurred. I would start by trying to identify the investments purchased with those extra $5500 deposits in the brokerage accounts.

If the deposits were really short and you can show the shortfall was in the required safe harbor contribution, you would still be able to self correct.

[doombuggy]

Yes, the total was $11,000. The $5500 x2 has been earning interest in the brokerage account of the owner's 401k assets and the wife's since August 2012. The pooled account where everyone's ER assets are supposed to be (that is a whole other story...) has been short that $11,000.

My thought was to do the lost earnings on that money back to the dates I indicated because the hCES have been earning interest on money that technically isn't theirs (they don't get SHNEC or PS) and all the rank & file are getting are fees...

[Bird]

Yes, I would simply move the money, plus (actual) earnings. I do still wonder though, if you were thinking the company owed the plan $11,000, how you were accounting for the money that was in, but in the wrong account.