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

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