late deposit of safe harbor match

Client received IRS Notice CP-403, no 5500s were filed for 2015-2016 .  We had been after the client to send the information.

Now that the client receives an IRS Notice, he finally sends a spreadsheet with the employee and employer contributions for each year.

Upon review, we determined the safe harbor match was calculated incorrectly for 2015-2016-2017.

I know there is a 12 month period after the end of the plan year to make the safe harbor contribution, but what are the ramifications if the corrected contributions are made after the 12 month period?

You will need to correct under EPCRS (Rev. Proc. 2016-51).  Corrective contributions under EPCRS count as annual additions for the year being corrected. Otherwise, you will likely have section 415 issues because you will be allocating amounts to people who termed in prior years. Note, EPCRS does not change when the amounts can be deducted.  It's not an easy read, but the Rev. Proc. covers your situation. 

More facts:

Plan established in 2012 as SHNE.

For 2015, employees given SHNotice  and plan amended as of 1/1/15 for SHM.

Client was told the basic safe harbor match as defined, 100% up to 3% and 50% of the next 2%.

Of course, client forgot about the 50% and only contributed 100% of the employee deferral up to 3% of W-2.

Wouldn't this take the plan out of SH status and subject the plan to ADP testing? But, then again, there would be no testing as there are no HCEs.

I assume all who met the age/service would need to get the TH contribution, if applicable.

If there are no HCE, how are there any key employees?

The only employee who is key employee as well as 1% as well as 5% owner is NOT participating.

How much does the 1% owner make?

In order for them to be a Key EE, they would have to make in excess of $150,000.  That would make them an HCE, too.

probably over the threshold, but if he is not contributing to the plan, why would it matter??

6 hours ago, thepensionmaven said:

Of course, client forgot about the 50% and only contributed 100% of the employee deferral up to 3% of W-2.

Wouldn't this take the plan out of SH status and subject the plan to ADP testing? But, then again, there would be no testing as there are no HCEs.

No, there is an operational failure because the terms of the plan were not followed.  If the client wants the plan to remain qualified, it needs to be corrected under EPCRS.  But, the plan will still be SH.

15 hours ago, thepensionmaven said:

probably over the threshold, but if he is not contributing to the plan, why would it matter??

He said the plan had no HCEs.    And being a 2% doesn't necessarily mean making a ton of money (more than $150,000, anyway).

He highly compensated employee is the owner of the company, who is not contributing.

Other than taking the plan out of SH status, I don't see a problem.

From what I have seen, taking the plan out of SH status mreans that the plan is determined to be a tested plan, subject to ADP/ACP testing; why would the ADP/ACP fail id no HCEs were contributing, they would be treated as 0% deferrals.

Am I missing something here?

I don't think so.  But your threw me a curveball when you posted

I assume all who met the age/service would need to

get the TH contribution, if applicable.

Did you mean Safe Harbor (SH) instead of Top Heavy (TH)?

I meant TH because if the plan is not a SH, don't we have to give the TH 3% to all eligibles,ie those not contributing???

2 hours ago, thepensionmaven said:

He highly compensated employee is the owner of the company, who is not contributing.

Other than taking the plan out of SH status, I don't see a problem.

From what I have seen, taking the plan out of SH status mreans that the plan is determined to be a tested plan, subject to ADP/ACP testing; why would the ADP/ACP fail id no HCEs were contributing, they would be treated as 0% deferrals.

Am I missing something here?

Yes, you are missing something really big. The SH match is required under the terms of the plan. Failure to give the participants the contributions they are entitled to receive is an operational failure that needs to be corrected to avoid disqualification.  You don't need to do ADP/ACP testing, you need to correct the operational failure.

Stick a fork in me, I'm done.

2 hours ago, thepensionmaven said:

I meant TH because if the plan is not a SH, don't we have to give the TH 3% to all eligibles,ie those not contributing???

Is the plan Top Heavy?  How so?  Does the 2% owner (assuming they are indeed a Key EE year after year) have more than 60% of the plan assets?

AND, if they did not make a deferral, or receive any PS, then they receive a 0% allocation for the year, and no Top Heavy contribution is necessary.

Plan effective 1/1/2009, established as a SHNE 401K.

I bad, I just looked in the file, we amended the plan 1/1/2015 to eliminate SH and go with a straight 401K, employee with employer 100% match of the 1st 3% of W-2.

The owner and wife are not contributing, all rank and file are contributing, the is obviously TH, but the participants are receiving 3% anyway.

I don't see a problem under this scenario.

To me, the plan is not "obviously" top heavy.  The owner and wife would have to have more than 60% of the total plan assets (adjusted by several things).  The only way I could see this getting TH is if there were some PS contributions skewed heavily to the owner.