Implementing Salary Deferral Elections

[Guest TPAStacey]

This question has come up twice for us in the past week and we thought we knew the answer but are now questioning it again...

If your plan has semi-annual entry dates for salary deferrals (including making modifications to current salary deferrals), when do you implement the change? Is it based on payroll period or paydate? For example, salary deferrals are to begin on July 1st. The first pay date is 7/3 but the pay period end date is June 30th. We thought the salary deferral agreement would go into effect with the 7/3 paydate, but two clients have come back and said that because the pay period ended June 30th, they waited until the 7/17 pay date.

Any thoughts or support you could refer me to?

[austin3515]

Pay-Date rules. Plus (generally) this is more likely to let someone defer (assuming the pay-date is later), and when it's that close I just can't see the harm in letting someone in one pay-date early.

Now maybe Mike Preston will chime in and tell you that risking disqualification of the plan isn't worth that one measley paycheck, but in my opinion, you should be okay.

Sorry Mike, I couldn't resist

[jpod]

I think it is pretty clear that the regs. embrace the "pay date" concept. In other words, an election is effective for pay if it is made before the pay date (i.e., it does not have to be made before the payroll period begins, or even before it ends).

[Mike Preston]

Chiming away....

You have succeeded in confusing me, austin, but no matter. I'm frequently confused.

Yes, pay date rules.

However, if the election form was received so late (e.g., Friday, June 29th at 4:59pm) as to make it impractical for their payroll processes to establish the deferral from the July 3rd paycheck, I see no harm in having the deferral begin as soon as administratively practicable.

In a perfect world, the SPD would say just that: You can change things by submitting an election form before January 1 or July 1 of any year. However, any change you request will become effective no sooner than the date it is administratively practicable to implement.

Or something like that.

On the other hand (famous actuarial phrase, that), if the election change was submitted well in advance of July 1st and the only reason these good folks were denied their plan-given right to defer was because the good folks in charge of these things were, shall we say, misguided in thinking that the pay period must begin after January or July 1, well, I think you should let them know that they shouldn't do that (unless they have specific advice from ERISA counsel) and that they should correct the error in accordance with the rules of EPCRS. A pain? Yup, a pain!