Requesting guidance on correction options for failure to make required

[Guest rpkas]

In 1999 an employer established a cross-tested safe harbor 401(k) plan. A 3% non-elective contribution was calculated and intended to be allocated along with a small discretionary employer contribution on behalf of the one owner in accordance with the cross-test feature. However, while performing the annual recordkeeping for 2000, it was discovered that neither the 3% non-elective contribution nor the discretionary amount was ever contributed to the plan. What is the effect on the plan's safe harbor status? Can the employer make-up the delinquent contributions and earnings under the SCP program, as they are within the correction period, and preserve the safe harbor status? As an additional note, the plan would not pass the required ADP test in the event the safe harbor status is revoked.

[Guest rhp]

First, the 3% safe harbor is in effect a required contribution. You should be able to make that contribution now plus earnings as described in Rev Proc 2001-17, appx B.

But for the 401a4 testing you can only count contributions made to the plan by the 404a6 deadline plus 30 days. [1.415-6(B)(7)] So I don't believe you can count the 3% safe harbor that is due. If you fail 401a4, then you could go to the IRS under VCO, describing the facts and proposing to make the contributions--safe harbor and discretionary.