Failure to make safe harbor/profit sharing contribution

[Doghouse]

I have to believe that a similar question has come up before, but if it has, I sure can't find it.

For 2011, the plan sponsor had a safe harbor nonelective contribution due. The sponsor also "declared" a profit sharing contribution. The 2011 and subsequent valuation reports were prepared on this basis.

Neither the safe harbor contribution nor the profit sharing contribution was ever made, although both were apparently deducted.

Since the safe harbor contribution was required, my understanding is that it must be accumulated with interest and deposited, using an EPCRS correction method. However, since the profit sharing contribution was NOT required, it seems to me that there is no making it up at this point, and that the correct action is to revise prior valuations to reflect that it was not made. Or, is the correct action to just make the contribution now and revise the tax return (which should be done anyway)?

Any thoughts? There are many positions I could talk myself into.

Thanks to anyone who replies!

Dog

[Flyboyjohn]

What does your client want the answer to be? Seems to me you'll have an easier time talking yourself into how to make a late 2011 profit sharing contribution as opposed to telling the participants that all their benefit statements since 2011 have been wrong. Have there been any disributions in the interim?

[Doghouse]

thanks flyboy - is what the client wants the answer to be relevant?

[jpod]

It is quite possible that the "declared" profit sharing contribution became an accrued benefit, once declared. One needs to review the plan document and see what it says, then review the corporate governance documents to see what was done to effect the "declaration." Case law may also be relevant, and case law may even say that the communication of a contribution to participants is enough to establish an accrued benefit. Sorry I can't be more definitive but it seems to me that one may have a much harder time here concluding that there was NO accrued benefit rather than the reverse. I think what the client wants is at least a little bit relevant because if the client has no stomach for risk then it's probably not worth the time and money to undertake a significant research project only to come out with a wishy-washy answer at best.

[Flyboyjohn]

Agreed, the client's "wants" are relevant in that if they're perfectly happy to make the late contribution you can easily work through the nuances whereas if they're trying to wiggle out of it there will be significant challenges and risks.

[BG5150]

If the PS goes in now, be alter for 415 issues.

[Kevin C]

Having never seen a document that provides for a discretionary contribution to become accrued when "declared", I'm skeptical that the late PS contribution would be considered a correction of an operational failure. If it's not a correction, it will be current year annual additions. It will depend on what the document says.

The SH contribution is required, so failure to deposit is an operational failure that can be corrected under EPCRS.