How soon does a Safe Harbor contribution have to be allocated?

[BG5150]

The employer deposited its 2012 Safe Harbor contribution in December 2013. However, the money sat in the cash account. The funds are still in the cash account, unallocated.

How soon must deposits made to individual-account plans be allocated to those accounts after the funds hit the trust?

(Similar question for the Profit Sharing contribution)

[Lou S.]

They are trustee directed until they hit individual participant accounts. It is more of a fiduciary issue on prudence of investment selection then anything else.

And possibly a failure to follow plan terms if it takes "too long" to allocate and all funds are supposed to be participant directed under terms of the plan.

But participant direction is not a protected benefit.

[Kevin C]

What is the company's fiscal year? If it is a calendar year, you have section 415 issues.

1.415©-1(b)(6)(i)

(B)Date of employer contributions.—

For purposes of this paragraph (b), employer contributions are not treated as credited to a participant's account for a particular limitation year unless the contributions are actually made to the plan no later than 30 days after the end of the period described in section 404(a)(6) applicable to the taxable year with or within which the particular limitation year ends. If, however, contributions are made by an employer exempt from Federal income tax (including a governmental employer), the contributions must be made to the plan no later than the 15th day of the tenth calendar month following the end of the calendar year or fiscal year (as applicable, depending on the basis on which the employer keeps its books) with or within which the particular limitation year ends. If contributions are made to a plan after the end of the period during which contributions can be made and treated as credited to a participant's account for a particular limitation year, allocations attributable to those contributions are treated as credited to the participant's account for the limitation year during which those contributions are made.

[Tom Poje]

at the 2010 ASPPA Conference, the IRS responded this way:

Contributions made after the Section 415 timing date of 30 days after the tax return due date are
considered to be annual additions for the following year. However, if consider the contribution a
self-correction under EPCRS, it is permissible to relate this back to the earlier year. If the
contribution is made after 12/31, you are clearly under EPCRS. [One of the exceptions to the
415 timing rule is an erroneous failure to allocate. See Treas. Reg. 1.415©-1(b)(6)(ii)(A).
EPCRS clearly treats post-415-period deposits that relate back to a prior plan year as an annual
addition for the year to which it is meant to be paid, but EPCRS applies only after the 12/31/09
deadline. Therefore, there is a lack of guidance for the period between 30 days after the tax
return due date and the end of the 12-month regulatory correction period.]

..............

this is one of those areas which impossible situations result if you follow a strict reading of 415.

the example I use is of Fred, who is due a safe harbor contribution for 2013. you can't have allocation conditions for a safe harbor and Fred quit in 2013, so he has no comp in 2014. But the contribution is deposited past Oct 15. sorry, I guess with no comp, his 415 limit is 0 so he can't get a the contribution.

I'd hold if it is a required contribution you can't really follow the 415 requirement (or as the IRS says "There is a lack of guidance for the period between 30 days after the tax return due date and the end of the 12 month regulatory correction period."

[BG5150]

We have no 415 issues in this case.

The larger issue is that whereas the money was contributed to the trust, it has not been allocated into the individual accounts.

let's change the fact pattern and say the SH was deposited in September 2013 for the '12 year.

How long of a gap is acceptable before corrections need to be made?

[Kevin C]

I don't think you will find a definite answer. The 415 regs define restorative payments in relation to a reasonable risk of liability for breach of a fiduciary duty. That ends up being a judgement call.

[Bird]

I think it has nothing to do with the type of contribution. The question is, is the plan self-directed or isn't it, and if so, then I think the answer as to "when" is "as soon as possible."