Allocation of Contribution

Administer a 401(k) plan that utilizes salary deferral, SH Nonelective and Profit Sharing. Salary deferrals are self-directed and everything else is pooled.

Sponsor is a corporation. Calendar Year 2022:

All salary deferrals were funded by 12/31/2022.

They funded employer contributions of $110,000 in 2022 and forgot to fund all remaining contributions.

There were Safe Harbor allocations of $110,000 for 2022. So the $110,000 deposit in 2022 covers that.

They intended to fund a profit sharing contribution of $200,000 for the 2022 year but mistakenly never funded it. They filed by March 15, 2023 and took a deduction for employer contributions of $310,000 ($110,000 SH + $200,000 PS). However, they forgot to fund the final $200,000 deposit.

They will need to amend their 2022 corporation tax return and show $200,000 of additional taxable income.

They want to make this up to their participants and deposit the additional $200,000 now. All 2023 year contributions have been funded properly. I believe they could fund the additional $200,000 now and have it along with the 2023 year employer contributions as deductible for 2023 (still under the 25% deductible limit).

If this is the case, should the $200,000 profit sharing be allocated as of 12/31/2022 (on the 2022 report) or should it be allocated as of 12/31/2022 and combined with the 2023 profit sharing allocation (on the 2023 report)?

Thanks!

I think it has to be a 2023 contribution as it will also count as a 2023 annual addition.

Understood. It would be a 2023 contribution.

Again this plan sponsor badly wants to make up for missing the deposit of the profit sharing contribution for the 2022 year. In this plan a participant is entitled to a profit sharing contribution in the year they terminate employment.

Suppose a participant terminated employment on December 31, 2022 and should have received a 10% of salary contribution for 2022 (the contribution the employer wants to make up to the participant). This participant would have no plan compensation in 2023 so no make up contribution could be allocated to him. Correct?

Thanks.

Unless there was a gateway requirement, I think 2022 allocation is not going to happen for this terminated participant.

Also, if you are doubling the contribution for 2022 and 2023, watch out for the deduction limits.