Benefit Rights & Features Issue - Timing of PS Allocation?

[moose401k]

I have a Safe Harbor PS 3% Plan that covers 150 employees. They are planning to fund the PS per payroll. Is there any BRF issue if the company were to fund the PS for most of the employees but miss a few of the participants because administrative errors etc. during the year, but were later caught with the annual true up? 

My concern is that everyone will not equally benefit in terms of timing of the allocation. 

I am advising against it as I see it to be a problem. But any guidance would be appreciated. 

[Tom Poje]

in the FT William document you have the following choices:

 

22.  Allocation of Profit Sharing Contributions

a.     Profit Sharing Contributions are allocated to Participant Accounts at the following time(s):

i.      [  ]  End of Plan Year

ii.    [  ]  Semi-annually

iii.   [  ]  Quarterly

iv.    [  ]  Each calendar month

v.     [  ]  Each pay period

 

so if you checked 'v'  how would you handle it - only once a year? no, I think you would follow the terms of the document. now if your document was checked 'i' and you allocate every payroll, then you aren't following the terms of the document either.

 

so if you missed someone, you fix it

[moose401k]

Thank you for your response!

The plan document would check 'v', and sponsor would fund the 3% PS of per payroll basis (following the terms of the plan document). If the sponsor fails to fund PS for some eligible employees throughout the year (for various reasons), does this get fixed by simply funding the total PS for those effected employees at year-end? 

Or does this become a BRF issue because some employee did not receive a benefit at the same time as others?

 

[Bri]

If you're missing only a handful of people, does the "feature" of early contributions nevertheless pass 410(b)?

[RatherBeGolfing]

3 hours ago, Tom Poje said:

in the FT William document you have the following choices:

 

22.  Allocation of Profit Sharing Contributions

a.     Profit Sharing Contributions are allocated to Participant Accounts at the following time(s):

i.      [  ]  End of Plan Year

ii.    [  ]  Semi-annually

iii.   [  ]  Quarterly

iv.    [  ]  Each calendar month

v.     [  ]  Each pay period

 

so if you checked 'v'  how would you handle it - only once a year? no, I think you would follow the terms of the document. now if your document was checked 'i' and you allocate every payroll, then you aren't following the terms of the document either.

 

so if you missed someone, you fix it

I agree that if you allocate every payroll when your document says allocate annually you could have an issue, but if we are talking about a 3% SHNE as the OP states, it shouldn't matter.  If it were a match and you allocate on a payroll basis, the difference could be significant.

That said, there is a difference between allocate and deposit.  Many plans allocate on an annual basis, but deposit on a payroll basis with a true-up at the end of the year.  Its more of a cash flow management issue.

The FTW compliance / admin module has a true-up feature that will calculate it for you.

I don't think a mistake that misses someone here and there, which is later fixed, is a big problem.  But if you only make the 3% deposit each payroll for the people who defer, and once a year for those who don't, you would have a problem.

[Vlad401k]

22 hours ago, Tom Poje said:

in the FT William document you have the following choices:

 

22.  Allocation of Profit Sharing Contributions

a.     Profit Sharing Contributions are allocated to Participant Accounts at the following time(s):

i.      [  ]  End of Plan Year

ii.    [  ]  Semi-annually

iii.   [  ]  Quarterly

iv.    [  ]  Each calendar month

v.     [  ]  Each pay period

 

so if you checked 'v'  how would you handle it - only once a year? no, I think you would follow the terms of the document. now if your document was checked 'i' and you allocate every payroll, then you aren't following the terms of the document either.

 

so if you missed someone, you fix it

Hi Tom Poje,

 

I agree that if the allocation is not done on Pay-Period basis as the document states, then it must be fixed. Let's say the company misses the contributions for 5 people (the document states that the contributions must be done on Pay-Period basis). What would be the correct procedure to fix this? Would you say it would be to deposit the missed amount or to deposit the missed amount plus earnings?

[Tom Poje]

example 4 of EPCRS is

The plan provides for matching contributions for each payroll period that are equal to 100% of an employee's elective deferrals that do not exceed 2% of the eligible employee’s plan compensation during the payroll period...

 

(2) Corrective contribution for missed matching contribution: Under the terms of the plan, if Employee X had made an elective deferral of $720 or 3% of compensation for the period of exclusion ($24,000), the employee would have been entitled to a matching contribution equal to 2% of $24,000 or $480. The missed matching contribution is not reduced because no plan limit is exceeded when this amount is added to the matching contribution already contributed for the 2006 plan year. Accordingly, the required corrective employer contribution is $480. The required corrective employer contribution is adjusted for Earnings.

[Bird]

Let's be clear about something.  If you "allocate" on a per payroll basis, and check that box, then there is no such thing as a "true up."  You just do your calc each pay period, correctly.  If there's an error and you don't make those deposits by, I think, the end of the next quarter, then you have to correct with interest.  (For a SHNE plan the contributions should be the same whether done per payroll or annually.  But...my office is NOT getting involved with per payroll calcs, and in my cynical world view, leaving it to the payroll company or, maybe worse, the client, will result in frequent errors.  So we would never allocate on a per payroll basis.  I do have one SH match plan that allocates on a per payroll basis and I am comfortable washing my hands and assuming it is correct, with a caveat that we aren't checking that.)

But if you say "allocate" on an annual basis but informally fund it each payroll, I think that is ok.  If there were errors then true them up at the end of the year, no problem.  As long as it's not discriminatory in practice, and as I've seen it done, it's the rank and file that get the money put in each payroll, for cash flow reasons.