Jump to content

Interpretation of Entry Date - First Payroll


Guest Chaffee

Recommended Posts

Guest Chaffee

In a 401(k), assume there is an April 1 Entry date.

What is the "official" interpretation of which payroll contributions must commence? Is it the first payment after the entry date, or the first payment for a pay period ended after the Entry Date? Consider three scenarios:

A) Payment on April 2 for the week ended March 26th.

B) Payment on April 9 for the week ended April 2nd.

C) Payment on April 16 for the week ended April 9th.

For which pay period must deferrals commence? If scenario B, would deferrals only be calculated for the service days after the entry date (i.e. April 1st & 2nd).

Any references to guidance would be appreciated.

Link to comment
Share on other sites

At face value, it is A, the first paydate occurring on or after the entry date.

From a practical standpoint it can be A, B, or C. It depends on the capabilities of the employer's HR systems to put the election in place.

I think the key is that if it is not A, the use of B or C just needs to be consistently applied. The last thing the employer wants is the appearence of being arbitrary. If that were the case, the door would be left open for a participant to hold the employer's feet to the fire and demand option A.

Link to comment
Share on other sites

Another question that comes up regulary. And the answer is sooooooo simple.

If you replace '401(k)' with 'CODA' (for the uninitiated that is a Cash or Deferred Arrangement') and remember the rules for a CODA-

Election must be made before there is constructive receipt of the funds.

Then what is constructive receipt? When the recipient can control the money. And they con't control until they receive the money!

See, the answer is simple - A - the first PAYDATE on or after the Entry date.

Link to comment
Share on other sites

Guest Chaffee

It seems simple, until my client tells me that the Payroll to be paid on April 2nd was already put through the system in late March, before the participant made an election. Same reason was given to me for Scenario B, in some instances due to timing.

The "CODA" reference wouldn't seem to "force" treatment A, it just wouldn't preclude any of the options.

Is there any specific guidance on this, or is it left to the Employer to be reasonable and CONSISTENT given its administrative systems and processes? For example, Employer indicates it will start deferrals on first full payroll after the Entry Date.

I seem to remember a certain Prototype in my past that specifically addressed this, but the current documents I'm reviewing do not.

Link to comment
Share on other sites

  • 3 weeks later...

How would this effect safe harbor elections? For instance, if the document is signed prior to 10/1 with proper notification, however, the plan cannot feasible be started until the second or third check date in October, will this effect the employers ability to offer a safe harbor plan in 2004?

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...