ACP Failure - Match Funded AFTER March 15th

[kevind2010]

I imagine this question must have come up before, but I cannot seem to find an answer. Plan passes ADP testing (by virtue of reclassifying Excess Contributions as Catch-up), but plan also fails ACP testing (document has fixed match calculated annually). Document does not have verbiage to reduce match to HCE's in order to pass the ACP testing. The match will not actually be deposited until after March 15th. Do I have to wait until after it's deposited to process the refund - hence the client incurring the 10% penalty?? It's a fixed match, so they definitely have to and will be funding the match. It's accrued in each employee's account balance as of 12/31/14, so does that make it part of the participant's account balance to the extent we can refund it out of the participant's non-accrued money?

[Lou S.]

What if they never make the match?

Is this pooled or individual accounts?

What do you do if a participants needs a match refund but doesn't have a balance in the individual account?

I think the technical right answer is to wait til the match is funded and pay the excise tax on a 5330. That said if you do the refunds before 3/15 and the match eventually gets funded, I don't think that's a problem.

The problem arises when the client changes its mind about funding the match or goes into bankruptcy and can't or won't fund the match and you've already made refunds. What do you do then?

[Tom Poje]

Q and A #28 ASPPA Conference 2012

Assume a calendar year 401(k) plan. Plan has a 100%

match on deferrals up to 6% of compensation and plan

will fail the ACP test. The employer's return for 2012 is

on extension until 9/15/2013. Because of cash flow issues,

the employer will not make the matching contribution for

2012 by 3/15/13. Based on deferrals for 2012, the

matching contribution will result in a violation of the

ACP test for 2012.

1. Is there a way for the employer to make a corrective

distribution by 3/15/2013 to correct the impending ACP

failure, even though the matching contribution won’t be

made until after 3/15/2013?

IRS response:

If contributions aren't made by 3/15/13, then a corrective distribution attributable to

the impending ACP failure may not be made by such date.

[Lou S.]

Did the IRS give a citation for that or just a comment from the podium?

Though for what it is worth, I actually agree with their position on this one.

[chc93]

Can the match contribution sufficient to cover the refund for failed ACP test be paid now (before Mar 15) and the rest later...