Correcting the Failure to Make a Safe Harbor Contribution (Posted August 8, 2003) Technical Tip 102: The following question and answer were from the IRS Q&A Session at the 2002 ASPPA Annual Conference: A safe harbor 401(k) plan fails to make 3% nonelective contribution by the end of the subsequent plan year. It would appear that plan is no longer a safe harbor and must perform ADP (and possibly ACP) testing. Additionally, safe harbor contribution still must be made. Contribution is made (with earnings) 18 months after year-end. In performing testing, can the safe harbor contribution be considered a "corrective" QNEC per Rev. Proc. 2002-47? Response: The premise posed above is incorrect. If you don’t make a required safe harbor contribution, you have a potentially disqualified plan! The above correction is reasonable. Comment by the RLR&C ERISA Attorneys: In order to satisfy the 401(k) plan safe-harbor rules, the safe harbor contribution (i.e., the 3% QNEC or the 3 - 4% match) must be made timely. (See IRS Notice 98-52.) If it is not, the plan incurs a "qualification failure" as currently defined in Section 5.01(2) of Rev. Proc. 2003-44, and is subject to disqualification. To correct a failure to make the safe-harbor contribution, the plan sponsor must make up that contribution and adjust it for earnings through the date it is contributed to the plan. There is no option to resort to ADP/ACP testing, as suggested in the question. This is why the Service indicated that the premise of the question is incorrect. For copies IRS Notice 98-52 and Rev. Proc. 2003-44, please go to the RL&R website at www.reish.com. View all Tips © 2008 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.