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Reading Room

June 9, 2008

FYI: Timing of Deposit of Matching
Contribution to 401(k) Plan

By Cindy Van Bogaert

Here is your latest FYI: Employee Benefits Update from Cindy Van Bogaert, Partner and Chair of the Employee Benefits Practice Group at Boardman Law Firm LLP.

This FYI addresses timing issues for matching contributions made to 401(k) plans sponsored by for-profit corporate employers. The law allows flexibility in plan design with respect to when the matching contribution must be deposited. If we consider a for-profit corporate employer sponsoring a plan with the same plan year/limitation year as the employer's tax year, the employer generally can deposit the match as late as the tax return filing deadline (with extensions) for the plan sponsor for that year. So, e.g., a 2007 matching contribution may not be made until some time in 2008. However, a plan may be designed to have an earlier deadline. If the plan provides for an earlier deadline for deposit, then the employer must follow the timing set forth in the plan. (If your plan year or limitation year is not the same as the employer's tax year, you should check for other rules that apply.)

Employers should:

  • Check plan documents to see what the deadlines are for their plans.
  • Be careful to accurately describe the plan design in participant communications.
  • If matching contributions are made in the following year, take care to properly handle the transaction so it relates to the year the employer has in mind.
  • Be aware that other timing rules apply to nondiscrimination testing and annual addition limit testing.

In my BenefitsLink 401(k) Q&A column, I recently addressed a question which provides more information about timing considerations.

Here is the link to the Q&A:
http://benefitslink.com/modperl/qa.cgi?db=qa_401k&id=74

Please contact me if you would like more information.

This FYI is not legal advice. Individuals should seek advice based on their particular circumstances from their own counsel. Nothing in this FYI is intended to be used, and no information can be used, for the purpose of avoiding penalties under the Internal Revenue Code, or promoting, marketing, or recommending to another party any transaction or matter addressed in this FYI.

If you have any questions or need assistance, please contact Cindy Van Bogaert at (608) 281-7543 or Email.

Would you like to have FYI: Employee Benefits Update sent directly to your e-mail inbox? If so, please send your request, with e-mail address, to Cindy Van Bogaert at Email.