Any advantages for a plan year different from employer tax year?

[Guest Doug Johnston]

We are consulting with a calendar-year employer whose profit sharing plan is on a September 30 year-end. They are converting to a safe harbor 401(k) plan, and have asked our advice on changing the plan to a calendar year. "Conventional wisdom" seems to be to operate a 401(k) plan on a calendar year basis so employees can better understand and monitor their contributions and benefits. However, it seems to me that there may be some tax, financial, and/or administrative ADVANTAGES to having different year-ends for the plan and the Company.

Has anyone ever studied the advantages and disadvantages or do you know any good articles (or previous threads) on the topic?

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[Mary Kay Foss]

My answer is based purely on the corporate deduction for the plan. The corporation can extend its return and delay the payment of any profit sharing contribution to 8.5 months after the fiscal year end. If the 401(k) is combined with a profit sharing plan, I'm not sure what happens to that deferral. If its a straight 401(k), the calendar year doesn't seem to cause any difficulties.

[Guest ebpcpa]

Not sure of any advantages, but I can think of two disadvantages, in adittion to those mentioned in earlier posts.

1) For the plan to qualify for an automatic extension of time to file the Form 5500, the plan and employer must be on the same year end and the employer must have filed for an extension of its corporate tax return. Of course, this is moot if the plan files a Form 5558.

2) There are certain administrative and reporting headaches caused by differing year ends. For example, some recordkeepers can only provide annual reports on a calender year basis, which can cause havoc if the plan is on a fiscal year end. Additionally, it may be more difficult to reconcile any payroll information to plan records, if the plan is on a fiscal year end.

Hope this helps.