new Safe Harbor Plan

[Guest p051]

New safe Harbor with a profit sharing portion went effective Sept. 1 2006. 4 HCE's all earn over $220,000/yr., 3 employees NHCE's. can the 4 HCE's put in all their $44,000 for tax year 2006, being that the majority will come from the profit sharing portion even though the plan didn't go effective until Sept 1. Will profit sharing contribution be capped to their salary only earned between Sept 1 - Dec. 31?

[Tom Poje]

please verify, I think you make it clear that deferrals weren't allowed to start until 9/1.

but that does not mean that is the effective date of the plan. the plan could have an effective of 1/1.

That makes a big differnce.

[SteveH]

The answer is could be. I'm not sure if you are new in the pension world, and don't get mad when i say this. Read the document, it will tell you. I absolutely hated hearing that, but for the first 10 months I worked on retirement plans I think I heard that every day.

Like Tom said you would have to clarify your comment that the plan "went effective in September 2006." There is an adoption date, which is when the document was signed. There is also a plan effective date, which is usually the beginning of the calendar year or the beginning of the companies fiscal year. It is not uncommon for a company to adopt a plan right before the end of the yaer and have it be effective for the entire year. If the company was just started in September then it may have an effective date of September, but most likely it is a full 12 month plan year.

To find out which compnesation to use, look in the definitions section of the document. It will say something like Compensation earned during the Plan Year. Then you will need to go read the definition of the Plan Year. This will tell you if the Plan Year is October 1 through September 30, or January 1 through December 30. I put the fiscal year in there because I made that mistake before. I assumed since the definition of comp said 'earned during the Plan Year" that it was during the calendar year, but the plan was run with a fiscal year end and I didn't catch it. So I asked the client for the employee's W-2 for the calendar year and that ended up being incorrect.

Another hint mgiht be the fact that you said it is a safe harbor plan. I think you ahve to use a full 12 month's salary for a safe harbor plan, but I could be wrong on that. I have never looked into that before.