What are the consequences of not making a required contribution to a pension plan? What about making one late?
Each plan year, your actuary will calculate the acceptable contribution range for your plan – from your Minimum Required Contribution (MRC) to the Maximum Tax Deductible Contribution you can make. Making your MRC on time is not just a best practice – there are financial and legal consequences if you miss your MRC or make the payment late.
- The IRS will charge substantial excise taxes for failing to make your MRC. Typically, a 10% excise tax is imposed on the unpaid amount and this excise tax continues to accumulate until corrected.
- Late MRCs can accrue interest which increases the total amount owed and increases your financial burden.
- If your plan is covered by the Pension Benefit Guaranty Corporation (PBGC), skipped or late contributions can trigger additional reporting requirements. You are also required to inform any plan participants about the funding deficiency which could damage employee trust.
- If the skipped or late MRC results in enough of a funding deficiency (causing your plan’s AFTAP to fall below 80% or 60%), your plan may have restrictions on what benefit payments you can make or what benefits can accrue. Persistent missed or late MRCs can affect the tax-qualified status of your plan.
Making contributions to your plan on time is critical for financial health and legal compliance. If you are worried about your ability to make MRCs to your plan, reach out to your IAI consultant as soon as possible! We may have some plan design adjustments we can make to keep your plan comfortably affordable for you.
