Pro-rate any limits for Short Plan Year?

[Richard Anderson]

Plan Year was 2/1 - 1/31. Compensation is defined as calendar year ending with or within the Plan year. Limitation Year is defined as calendar year ending on or within the Plan Year.

The Plan Year was amended to calendar year, with a short Plan Year of 2/1/04 to 12/31/04. The definition of compensation and the Limitation Year are unchanged, both remaining as calendar year.

Should any limits be pro-rated? It seems that they would not, since the compensation period and the Limitation Year have not changed.

Also, this is the second year that the plan has allowed salary deferral contributions. It was a profit sharing plan prior to that. The first year of being a 401(k) (the 2/1/03 to 1/31/04 plan year) was not Safe Harbor. For the second year of being 401(k) (the short plan year of 2/1/04 to 12/31/04) a Safe Harbor Notice was distributed telling particiapants that for the 2/1/04 to 12/31/04 Plan Year the Plan will be Safe Harbor and will make the 3% non-elective contribution. Any thoughts on the short Plan Year Safe Harbor?

Thanks.

[Tom Poje]

I believe you are correct, since the comp period used is 12 months long and the limitation year is 12 months long as well, no proration.

watch hours for vesting, as that needs to be 12 months as well.

safe harbor- that is suppose to be 12 months long unlessyou have a new plan, if I recall you could not even put in a successor plan and say you have a new plan to get around the issue. However, the new regs do permit safe harbors less than 12 months so that should work. I believe you are required to follow all the rules of the new regs in that case, but I don't see anything else in the new regs that would effect the operation anyway (e.g. you dont need a bottom up QNEC, there will be no gap period income for a failed test, etc)

[Blinky the 3-eyed Fish]

I emphatically agree you are correct on the 401(a)(17) and 415 limits.