OK to use new 401(k) profit sharing document for 2003 but just don't tell employees about ability to defer? Want to start 401(k) component only in 2004.

[Archimage]

A company is starting a brand new plan. Want to do profit sharing only for 2003 and then start 401k piece 1/1/04. The prototype I am using does not offer to add a different effective date for the 401k piece. Are there any problems with making everything effective 1/1/03 if no one in the plan is given the opportunity to defer?

[QDROphile]

The prototype ought to allow you to have a 2003 effective date. Then amend effective January 1, 2004 to add the 401(k) feature. You can probably submit the amendment documents in the same batch of paper as the original adoption documents.

[Archimage]

Trying to kill two birds with one stone.

[chris]

As to 1/1/03 effective date for the 401(k)......clearly, e/ee's can't defer comp. already earned. Thus, adopting the 401(k) today, but effective 1/1/03 would not appear to be a problem, however....... You would have to communicate it to the employees so that there's no existence of a plan issue, but employees will be aware at same time that purpose is to start 401(k) as of 1/1/04 and that there's not much left to defer in 03 (unless the e/ee is paid enough such that he/she would be able to defer the 402(g) limit in one pay period. Practical problem would be where e/ee wants to defer for last part of December and you say they cannot do it........ Otherwise, try a volume submitter doc. from Corbel.

[E as in ERISA]

Are you doing prior year testing for ADP? I can't remember how the special rule for "first year" of a 401(k) plan would apply here. Would it apply only to 2003? And then for 2004, would you have to use 0% as your prior year NCE ADP?

[Archimage]

It will be a safe harbor plan so they would use current year.