Post yr end Bonus deferral and 3% safe Harbor

[Guest Ed Walker]

The webs we weave to try to keepemployees happy! the employer paid a post 2000 year end bonus(ie in March of 2001), and deducted it in 2000 (the prior year). The employee was allowed to elect to take in cash or defer to the plan as a prior year contribution. Bonus/deferal shows on 2001 w2 for year actually payable. So far I don't think there is a problem with this bit of creativiety.

I believe, without specific exclusion from the definition of compensation, the 2000 bonus which is reported on 2001 current w-2 will be included for determining share in 2001 PS.

For a 2001 safe Harbor 3% must the bonus be included in that caculation ??--

Now for the real kicker: 2 employees terminated in 2000, recieved the 2000 bonus in March of 2001, thus a 2001 w2 but worked no hours. Do we now have to give them the 3% to satisfy the Safe Harbor? Note they worked no hours in 2001.

Thank you in advance for your input.

[chris]

Despite the issue of giving a bonus to e/ee's who are no longer e/ee's, I would think they would be entitled to the 3% safe harbor based on the minimal 2001 W-2 compensation. It sounds as if the plan administrator is treating the e/ee's as "eligible employees" in 2001. If so, then they are "eligible employees" for purposes of safe harbor. Further, since no minimum hours of service can be required to get the 3% safe harbor contribution, they're entitled to it.

Take a look at page 11.41 and 11.42 of The ERISA Outline Book. That gives you a good roadmap re treating or not treating such individuals as "eligible employees".