Who's the Employer?

Answer: Your question raises an important issue for multiple employer plans, particularly those sponsored by PEOs. It demonstrates the importance of carefully addressing participating employer responsibilities, either in the plan document or in an outside contract.

Each participating sponsor in a multiple employer plan must apply the top-heavy rules separately. Thus, the plan must determine separately for each sponsor whether that sponsor's portion of the plan is top-heavy. If so, that sponsor must make the required contributions for its non-key employees. If the sponsor does not make the contribution, the plan as a whole risks disqualification.

But you have a different question: When is the top-heavy contribution due? You will search section 416 and its regulations in vain for an answer to that question. The top-heavy rules mandate a minimum contribution for each top-heavy year. They don't impose a deadline on funding that contribution.

If the CO makes the required contribution by 6/15/2006 in your situation, not only can the CO deduct it on the 9/30/2005 tax return, but it will be an annual addition for the 2004 plan year. Without any IRS guidance on the subject, I think that such a contribution would be timely for purposes of the top-heavy rules.

The lesson here is that in a multiple employer situation, a sponsor should not rely on the Code to do all the "heavy lifting." It is quite reasonable of the PEO to want to have the contribution by 10/15/2005, especially since the plan as a whole is in jeopardy if the employer fails to contribute. If the PEO wants to make sure that will happen in the future, the PEO should either amend the plan to require funding by that date, or have that requirement be a part of its contract with its client. An "off-the-shelf" document is almost always unsuitable for these situations. Careful planning and drafting is needed to protect the interests of all parties.

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