Funding of a SH Match True Up

[justatester]

If a plan funds the match on a per payroll period, but the "computation/determination" period is annual per document,  we calculated a "true up" calculation.  The clients now owes additional 2019 SH Match.  What happens if this amount is not funded by 12/31/2020?  I can only find reference to it must be funded, but no real answer as to what if not funded.

 

[pmacduff]

The SH match is an Employer contribution and therefore due to the Trust by the time the Employer files it's tax return (plus extensions). 

In other words, the true up contribution must be in by the Employer's tax filing deadline unless it extends, then it would be the extended date.

Does this help?

[justatester]

No....I get when it is due...but what happens when not funded by due date?

 

[FORMER ESQ.]

8 minutes ago, justatester said:

No....I get when it is due...but what happens when not funded by due date?

 

The portion not contributed by the tax filing deadline is not deductible under Section 404 of the Code for 2019 plan year.  For what it's worth,  if it is contributed by 12/30/2020, it could still count as an annual addition for 415(c) purposes for the 2019 plan year. 

 

 

 

[justatester]

Does it impact the SH status of the plan?

[C. B. Zeller]

They will have a qualification failure and need to correct it under EPCRS. If eligible to self-correct, they have until the end of the 2022 plan year to do so, or longer if it is not a significant failure.

[FORMER ESQ.]

5 minutes ago, justatester said:

Does it impact the SH status of the plan?

Sorry, I missed the fact that this is a SH match plan. That makes a huge difference in response. If the plan document requires the match to be made on a payroll by payroll basis, then the safe harbor rules require the funding to be made no later than the last day of the quarter following the quarter for which the contribution is otherwise due. If the plan document states that match is based on full year comp and deferrals, then the deadline is 12/31/2020.

[FORMER ESQ.]

7 minutes ago, FORMER ESQ. said:

Sorry, I missed the fact that this is a SH match plan. That makes a huge difference in response. If the plan document requires the match to be made on a payroll by payroll basis, then the safe harbor rules require the funding to be made no later than the last day of the quarter following the quarter for which the contribution is otherwise due. If the plan document states that match is based on full year comp and deferrals, then the deadline is 12/31/2020.

Having said all of that, if not funded by 12/31/2020: No deduction under 404 for 2019 for portion of matching contribution not made by applicable deadline. Amounts not included in 415(c) for 2019. Operational failure, which will need to be fixed under EPCRS.

[Kevin C]

Section 415 issues may start earlier than 12/31/20.  1.415(c)-1(b)(6)(i)(B) requires employer contributions to be deposited no later than 30 days following the deduction deadline  if they are going to count as annual additions for the limitation year. EPCRS has an exception to this for corrective allocations, but there would be some lost income included with the correction.

Quote

(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.

 

[pmacduff]

See I should never answer things when tired...I did not see that it was a 2019 contribution in the original post, my apologies!!!