What limits need to be pro rata for our 401(k) plan's first, short plan year?

[Guest lilnemo]

we are a new s-corp and as such started a 401k. s-corp started 9-1-03 as did the 401k. We have 12/31 year end on both.

we're facing a short plan year for the first year of operation. where do I find all pertinent information regarding a short plan year.... I realize some things need to be prorated, whereas others may not.... I really need to find all research on this to move ahead.

[Guest jhilliard]

Well lilnemo, this is a very open question, what provider is the plan with? Have you contacted them for assistance? Is there a broker involved? ......

[Guest LTurner]

the provider is Manulife... the broker is not a pension expert....

We're looking for technical guidance on which limits/tests need to be prorated and which do not....

[Tom Poje]

regs are unclear for a new company. Years ago at an ASPA conference the IRS implied the effective date could proceed the existence of a company. one would want to make sure that is what one is requesting in a dtermination letter and see what the IRS says. If they let you use 1/1 then no proration.

If the document already exists with an effective date of 9/1, then:

no proration for deferral limit. that is indivual, at $12,000 for 2003.

vesting MUST MUST MUST be 12 months. therefore the first year runs from 9/1 - 8/31. After that it woulkd be based on a calendar year. there would be an overlap.

everything else would be prorated. BUT! check definition of compensation. If it says something like 'the calendar year ending within the plan year' then I don't believe there is anyproration. Not 100% sure on that, but the document is saying use a 12 month period, even though no one has 12 months of comp. But if an ee enters a plan mid year, then there is no proration on the individual either, so that would make sense. Just what does the document say?