Initial Short Plan Year

[Guest LoloV]

I have read some prior posts about Short Plan Years and wouldn't mind some assurance on my interpretation regarding the following scenario:

Effective Date: 03/31/03 (Apparently there was a Simple Plan prior to this)

Plan Year: March 31

Limitation Year: March 31

Entry: Anyone employeed on or before 03/31/03, enters on 03/31/03.

Plan Comp: Comp from date of participation.

I understand the following to be true:

Short Plan Year - 03/31/03 - 03/31/03 (5500, allocation & testing)

Plan comp to use for P/S Alloc - 03/31/03-03/31/03 (pro-rate $200,000 limit)

415 comp to use - 04/01/02-03/31/03 (do not pro-rate $200,000 limit)

Deductibility comp - 04/01/02-03/31/03 (do not pro-rate $200,000 limit)

Vesting-no proration of hours. However, we need to give credit for 1000 hours worked from 03/31/03-03/31/04 and 04/01/03-03/31/04

There are not deferrals for the first plan year, so ADP is not an issue.

If the above is true, is there any way the plan could have been drafted to get 12 months comp for the P/S allocation? I realize making the plan effective 04/01/02 would have done it but since the Simple plan was in effect, they could not have another retirement plan.

Any input would be greatly appreciated.

Thanks!

[Guest LoloV]

I forgot one item, this plan uses permited disparity. I assume the SSTWB gets pro-rated for the short plan year (1 day).

Thanks again!

[chris]

When did the simple 401(k) go away? Why the effective date of 3/31/03 instead of 4/1/03? If you can't maintain one while you had the other, what's the point? Maybe I'm missing it.....

[Guest jdw]

You cannot have a SIMPLE plan in the same CALENDAR year you accrue benefits in a 401(a) plan with respect to service performed that CALENDAR year. IRC 408(p)(2)(D).

Your scenario appears to be accruing a benefit in the new 401(a) profit sharing plan in the same year the SIMPLE plan exists. The IRS says for off-calendar year plans, the rule extends to plans beginning or ending in the calendar year. See Notice 98-4.

You can have them simultaneously only if no accruals occur in the 401(a) plan. For example, a sponsor decides mid-year to drop out of a profit sharing plan and set up a SIMPLE. It makes no contribution to the profit sharing plan that calendar year. IRS says that is ok. You cannot have a 401(k) plan and a SIMPLE plan in the same calendar year, at least if anyone defers.

Exceptions are union-only plan and acquired employees. IRC 408(p)(2), (10)