415 limits

[ajustice]

I have a plan that did not make their 2018 profit sharing contribution until September 15, 2019.  Under the correction methods they are allowed to make that contribution but they have to  make sure that the 415 limits for 2019 still pass including the 2018 profit sharing amounts.  I have one person who terminated in 2018 so does not have any 2019 compensation so their 415 limit would be exceed for 2019.  Since this is a new comparability formula with everyone in their own class and their contribution was necessary to pass the test in 2018.  Can this money be removed from this participant and put in suspense or reallocated?

[Bird]

What was the deadline (due date) that was missed?

[ajustice]

They missed depositing the 2018 profit sharing contribution by the time they filed their 2018 tax return

[Mike Preston]

What was the date that they filed their 2018 tax return?

[ajustice]

They filed their 2018 tax return on September 15, 2019.  They are a calendar year plan year and calendar year for tax return.  

[ajustice]

Sorry about the dates they did not make their 2018 profit sharing until September 15, 2020.

[Luke Bailey]

ajustice, I assume this was not a discretionary contribution, since you say the failure to contribute for 2018 has to be corrected. With a corrective contribution 415 is tested for the year in which the contribution was supposed to be made, so here 2018, not 2019 or 2020.

[Mike Preston]

1 hour ago, Luke Bailey said:

ajustice, I assume this was not a discretionary contribution, since you say the failure to contribute for 2018 has to be corrected. With a corrective contribution 415 is tested for the year in which the contribution was supposed to be made, so here 2018, not 2019 or 2020.

What Luke said.

[ajustice]

This was a discretionary profit sharing contribution. 

[Bird]

15 hours ago, Luke Bailey said:

ajustice, I assume this was not a discretionary contribution, since you say the failure to contribute for 2018 has to be corrected. With a corrective contribution 415 is tested for the year in which the contribution was supposed to be made, so here 2018, not 2019 or 2020.

 

2 hours ago, ajustice said:

This was a discretionary profit sharing contribution. 

Things kind of break down here; the proper thing to do is re-do 2018 to reflect no contribution.  The other option is to let the client decide if they want to take their chances and hope they aren't audited, or if they are, to be able to convince the agent to let it slide (by arguing that it is in fact a correction or otherwise pleading leniency).  In which case the 415 question is moot - if you're going to ignore the rules why follow that one?  (I'm not saying I wouldn't do it; just being very blunt.)  

[Luke Bailey]

If there was no resolution or other action of binding legal force in 2018 or 2019 committing to make the contribution for 2018, there is nothing to correct. You could not allocate a contribution, then, in 2020 to someone who had no compensation in 2019 or 2020.

[ajustice]

There was an Employer Declaration stating that they were making the 2018 profit sharing contribuiton.

[Luke Bailey]

19 minutes ago, ajustice said:

There was an Employer Declaration stating that they were making the 2018 profit sharing contribuiton.

So obviously can only speculate without seeing document and knowing a lot of other facts, but arguably a participant who would have received an allocation for 2018 and who, for example, termed in 2019 might (I just said might) have an argument under ERISA (not Code) that was entitled to the allocation, and in that case you would be in the area of correction under EPCRS.

[Bird]

46 minutes ago, Luke Bailey said:

So obviously can only speculate without seeing document and knowing a lot of other facts, but arguably a participant who would have received an allocation for 2018 and who, for example, termed in 2019 might (I just said might) have an argument under ERISA (not Code) that was entitled to the allocation, and in that case you would be in the area of correction under EPCRS.

What might possibly be in the document that would make the contribution required?  Having said that, I think it is the argument that would have to be made if "caught."  And if participants's statements were distributed showing the contribution that would create some...expectation that you'd use to buttress the argument.  (But I think we would all argue that if statements were handed out showing a contribution, and the employer changed its mind, that the statements are meaningless.)

[Luke Bailey]

3 hours ago, Bird said:

What might possibly be in the document that would make the contribution required?

Document would say something like the employer determines the contribution for each year, and the contribution so determined is then contributed and allocated in a certain way. The issue would be that whether the employer had determined it. If so, then it became an enforceable obligation by the plan and participants against employer if not made. Of course if the contribution were discretionary and there is a credible case that the discretion was never exercised, then it would likely not be an obligation. But the questioner in later post said there was an "Employer Declaration."