Interest on Late Safe Harbor Contributions

Have a client that missed making their Safe Harbor Contribution.  Going to make the payment now, plus lost interest.  The question is what interest rate should be used?  Where the money is invested calculates the actual rate of return, and from the due date to today most of the participants have actually lost money (even though the Plan lost during this time, I don't believe we can't avoid making interest).

Therefore is it best to use the VFCP calculator to calculate interest? 

Thanks!

If the participants have an existing balance from before the allocation date, then their actual return is appropriate; and if it's negative then so be it, they are then benefitting by getting the monies whole at this later date. 

If they did not have an existing balance (safe harbor non-elective?), then they would be credited with the return of the highest performing fund.  Again, if all the investments lost value, then they "benefit" from getting the whole amount now.

The VFCP calculator is only appropriate for late deferrals and loan payments that are to be corrected through the precepts of VFCP; EPCRS does not recognize the awarding of a flat% return for lost earnings unless the calculation of actual earnings would be burdensome.  However, even then you would be restricted to a market-driven determination.

What does "late" mean in this context?

Just now, C. B. Zeller said:

What does "late" mean in this context?

They missed the 09/15/21 deadline for their required contribution.  Going to be making it this week, plus any interest owed to make the participants whole.

Just now, metsfan026 said:

They missed the 09/15/21 deadline for their required contribution.  Going to be making it this week, plus any interest owed to make the participants whole.

Does the plan document say that contributions have to be made by 9/15/2021?

Just now, C. B. Zeller said:

Does the plan document say that contributions have to be made by 9/15/2021?

It was a 2020 required contribution, so it had to be funded by September 15

1 minute ago, metsfan026 said:

It was a 2020 required contribution, so it had to be funded by September 15

It would have had to be deposited by September 15 in order to be deductible for 2020, assuming that the employer's tax filing deadline including extensions was September 15. However deductibility is not a qualification requirement, so the fact that the employer failed to make the contribution by the deduction deadline is not in and of itself a qualification failure, and therefore not correctable under EPCRS.

Just now, C. B. Zeller said:

It would have had to be deposited by September 15 in order to be deductible for 2020, assuming that the employer's tax filing deadline including extensions was September 15. However deductibility is not a qualification requirement, so the fact that the employer failed to make the contribution by the deduction deadline is not in and of itself a qualification failure, and therefore not correctable under EPCRS.

Got it.

Do you agree that we don't need to add interest to make the participants whole, since they have all seen the value of their accounts decrease?

20 minutes ago, metsfan026 said:

Got it.

Do you agree that we don't need to add interest to make the participants whole, since they have all seen the value of their accounts decrease?

Not necessarily. There may be other facts and circumstances to consider.

You probably do have a qualification failure that needs to be corrected, but 9/15 might not be the correct date to use.

9 minutes ago, C. B. Zeller said:

Not necessarily. There may be other facts and circumstances to consider.

You probably do have a qualification failure that needs to be corrected, but 9/15 might not be the correct date to use.

What else should I be considering?  Just want to make sure the client gets this rectified quickly and correctly.

Safe harbor amounts aren't late until the 12/31 following the end of the plan year - that's the date they were truly due.  (As CBZ noted, that's independent of their deductibility.)

Unless we're talking about a payroll-based SH match, those are due by each succeeding quarter-end.

3 minutes ago, Bri said:

Safe harbor amounts aren't late until the 12/31 following the end of the plan year - that's the date they were truly due.  (As CBZ noted, that's independent of their deductibility.)

Unless we're talking about a payroll-based SH match, those are due by each succeeding quarter-end.

Got it, thanks!

What do you think of charging the client interest on the late payment though?  Assuming everyone had a negative rate of return, is it not necessary?

Is the ROR negative from 12/31/21 thru today?

If so, I would just fund the gross amount and leave it at that.

If the ROR is positive, then some sort of reasonable calculation of the earnings must be used.  If the custodian will do that for you, great.  Otherwise find another method.

Has anyone ever been taken to task using the DOL calculator for things like this?

18 minutes ago, BG5150 said:

Is the ROR negative from 12/31/21 thru today?

If so, I would just fund the gross amount and leave it at that.

If the ROR is positive, then some sort of reasonable calculation of the earnings must be used.  If the custodian will do that for you, great.  Otherwise find another method.

Has anyone ever been taken to task using the DOL calculator for things like this?

Yes, I had originally ran them from 09/15, but just re-did it from 12/31 and everyone has a negative rate of return as per the custodian.

Then I would just deposit the gross amount.  The ER should not get a windfall b/c there were losses in the market.

Note the file.

Move on.

48 minutes ago, BG5150 said:

The ER should not get a windfall b/c there were losses in the market.

1000% agree, phantom losses does not reduce the required contribution