Eligibility Issue

[Guest padmin]

401K plan has eligiblity as follows: 1st of month following one month of service. For employees who enter on the first, the 401k deduction is being taken out of the first paycheck following, which is a paydate of the the 4th or 5th for services rendered in the last two weeks of the prior month. The employees are eligible and have met an entry date but the deduction is being taken out of a paycheck for service rendered prior to eligiblity. Any thoughts?

[SteveH]

Personally I wouldn't sweat it. Just be consistent.

[Just Me]

I agree with ttott. As long as they don't have the option of receiving the cash for that pay period prior to the date the paychecks are delivered, it seems like a good CODA to me.

[RCK]

I agree with the others. Individuals are cash based tax payers, so you should be taking deferrals as soon as possible after they become eligible and make an election. Waiting for pay earned after the eligibility date does not make sense

[austin3515]

Not even a gray area, they're definitely eligible for deferrals. Everything is based on pay-dates. For example, if this was a profit sharing contribution, I don't the question would even have been asked--the ee gets the contribution on all pay-DATES as a participant (assuming comp b4 participation is excluded).