One Person Plan and 401(k) Deferral Deposit Deadline

[PensionPro]

We have a one participant 401(k) plan that files a Form 5500-EZ.

Does the DOL's 7 business day safe harbor rule for depositing 401(k) deferrals apply in this case?

What is the fix if they blow the deadline -- same as for other small plans?

Thank you!

[Flyboyjohn]

DOL has no interest in or jurisdiction over owner-only plans

[PensionPro]

Does it violate the Code and how is it fixed? Thanks.

[jpod]

I agree about DOL having no jurisdiction. However, doesn't the DOL's regulation addressing when participant contributions become plan assets apply for purposes of Section 4975 of the IRC (as well as for purposes of Title I of ERISA)? If so, don't you have a risk of a Section 4975 PT if you have not deposited in accordance with that regulation? On the other hand, this probably only is an issue in the case of a one-person plan if the employer entity is a corporation or a partnership, but not in the case of an unincorporated sole proprieter.

[Flyboyjohn]

Agree with jpod that if your one-participant is a W-2 employee and an obvious deferral is withheld from a paycheck you could probably stumble into a PT.

But if the one-participant is self employed who's to say when a "deferral" occurs? Isn't it when the owner/business sends the $$ to the plan so in essence it can never be late?

[PensionPro]

The situation we encountered deals with the 100% owner of a Corp whose 401(k) deferrals were reported on Form W-2 and were deposited to the trust in October following the calendar/plan year.

The deferrals are clearly deposited late. So do we pay the lost earnings to the trust, file Form 5330, etc. to correct this? Thank you everyone for the input!

[jpod]

with a one person plan why even bother with a 401k deferral feature?

[Bill Presson]

The situation we encountered deals with the 100% owner of a Corp whose 401(k) deferrals were reported on Form W-2 and were deposited to the trust in October following the calendar/plan year.

The deferrals are clearly deposited late. So do we pay the lost earnings to the trust, file Form 5330, etc. to correct this? Thank you everyone for the input!

I would do the calculation, which will probably be small, and calculate the penalty, which will also be small, and deposit both amounts to the plan as a self correction. Also make sure that the corporation DOESN'T deduct the interest or penalty. Doesn't meet the letter of the law, but, again, that's what I would do.

with a one person plan why even bother with a 401k deferral feature?

Not enough info to know, but if the owner's income is $120k or less, this method allows them to mostly max out the 415 limit.