Late Employer Disc Matching Contribution

[ratherbereading]

Good morning-- I hope someone can help with this -- Larry Starr maybe?    We have a plan who does not fund their discretionary match until 2 years past  the plan year end (12/31) Ex: the match for 12/31/16 was funded on 6/5/2018.     The auditor is saying that earnings should be calculated on the late matching contributions.  I cannot find anything on this other than making the ER contribution prior to the filing deadline of the employer’s income tax return, including extensions, if they want to take a tax  deduction, which they didn't.  Has anyone heard of this, or can anyone site a regulation?

Thanks!

[Kevin C]

It sounds like the auditor wants to treat it as a corrective contribution under EPCRS to avoid Section 415 issues with the timing of the deposit. I wouldn't feel comfortable doing that with a discretionary contribution, but others might.

Quote

1.415(c)-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.

 

[ratherbereading]

14 minutes ago, Kevin C said:

It sounds like the auditor wants to treat it as a corrective contribution under EPCRS to avoid Section 415 issues with the timing of the deposit. I wouldn't feel comfortable doing that with a discretionary contribution, but others might.

 

Thank you Kevin

[Larry Starr]

2 hours ago, ratherbereading said:

Good morning-- I hope someone can help with this -- Larry Starr maybe?    We have a plan who does not fund their discretionary match until 2 years past  the plan year end (12/31) Ex: the match for 12/31/16 was funded on 6/5/2018.     The auditor is saying that earnings should be calculated on the late matching contributions.  I cannot find anything on this other than making the ER contribution prior to the filing deadline of the employer’s income tax return, including extensions, if they want to take a tax  deduction, which they didn't.  Has anyone heard of this, or can anyone site a regulation?

Thanks!

But WHY are they doing this? If this were my client (well, if they WERE mine, they wouldn't be doing this), and they did this, they would stop doing it or stop  being my client.  Yes, we occasionally have to fire clients who don't do things "my way".  Kevin has given you the treatment issue and the 415 issue; we don't want a client who does this (others may feel differently).

[ratherbereading]

1 hour ago, Larry Starr said:

But WHY are they doing this? If this were my client (well, if they WERE mine, they wouldn't be doing this), and they did this, they would stop doing it or stop  being my client.  Yes, we occasionally have to fire clients who don't do things "my way".  Kevin has given you the treatment issue and the 415 issue; we don't want a client who does this (others may feel differently).

 They do it because they feel that since the match is discretionary they can put it in whenever they want...

[Earl]

Isn't there a point in time after the year end when it has to be tested as a non-elective contribution?

[austin3515]

Ding ding ding.  ACP test match contributions are due by the 12/31 following plan year-end.  I can't remember if they are included in the following years test or if they are nonelective contributions.

32 minutes ago, Earl said:

Isn't there a point in time after the year end when it has to be tested as a non-elective contribution?

 

[tghooper]

From my experience, auditors like to calculate lost earnings and think that solves the problem.  I would agree with Kevin but make sure you pass Sec 415.

[austin3515]

From 1.401(m)-2.  This is the big issue!

(iii) Matching contributions. A matching contribution is taken into account in determining the ACR for an eligible employee for a plan year or applicable year only if each of the following requirements is satisfied—

(A) The matching contribution is allocated to the employee's account under the terms of the plan as of a date within that year;

(B) The matching contribution is made on account of (or the matching contribution is allocated on the basis of) the employee's elective deferrals or employee contributions for that year; and

(C) The matching contribution is actually paid to the trust no later than the end of the 12-month period immediately following the year that contains that date.

[Larry Starr]

On 9/27/2019 at 3:03 PM, ratherbereading said:

 They do it because they feel that since the match is discretionary they can put it in whenever they want...

We don't let clients "feel"; they pay us to do that, and they follow our directions or they are not our clients.  

[ratherbereading]

On ‎9‎/‎29‎/‎2019 at 12:18 AM, Larry Starr said:

We don't let clients "feel"; they pay us to do that, and they follow our directions or they are not our clients.  

I get it- our tpa owner said do what the auditors say to do but our compliance dept is researching it.