Friday the 13th style question

[Tom Poje]

since my mind mentally can't handle how to calculate the following:

Plan year runs 7/1/07 - 6/30/08

but comp for allocation purposes is calendar year comp. thus the comp for the calendar year ending within the plan year is zero.

immediately eligibility. ee hired in 2008 and so enters in 2008. and is there on the last day of the plan year.

plan is top heavy.

so his top heavy minimum is zero?

and if plan was tested for nondiscrim he shows as zero?

and for coversge he got nothing though he is eligible?

[Below Ground]

Tom, does quoting the Nondiscrimination Answer Book help? I found "compensation must be based on a plan year, but may be limited to the portion of the plan year during which the employee was a participant in the plan" for purposes of nondiscrimination testing. I even found some other interesting stuff, but I refrain for brevity sake. Anyway, does this help? Have a nice day!

[Tom Poje]

in this case no, it doesn't help, because comp can also be based on calendar year ending with the plan year.

I had never thought about some of the things that happens if you use calendar year comp, but the plan year is something else. ee could 'have comp' from 1/1 - 5/23 and quit, but for the plan year which runs 7/1 - 6/30 he has no hours.

by the way, I did try and submit your safeharbor question for the Q and A at the Western Benefits Conference, but that doesn't come up for awhile.(July) Granted its late for submitting stuff, but I do have a little influence at getting some questions submitted, so maybe I'll get an IRS response someday.

[Belgarath]

"Plan year runs 7/1/07 - 6/30/08

but comp for allocation purposes is calendar year comp. thus the comp for the calendar year ending within the plan year is zero.

immediately eligibility. ee hired in 2008 and so enters in 2008. and is there on the last day of the plan year.

plan is top heavy.

so his top heavy minimum is zero?

and if plan was tested for nondiscrim he shows as zero?

and for coversge he got nothing though he is eligible?"

I agree.

[Below Ground]

I stand corrected! I guess I learned something new today.

Thanks on the Safe Harbor Question. I ended up taking the safe route and recommended that they kick in the money to make up the 3%. They actually decided to do even more, maxing out Integration. Alls well that ends well.

[Laura Harrington]

Seems suspcious to me that you can get out of a top heavy minimum this way.

However, I don't think you can use $0 for the nondiscrimination testing. See paragraph (5) below.

§1.401(a)(4)-12. Definitions

Plan year compensation - (1) In general. Plan year compensation means section 414(s) compensation for the plan year determined by measuring section 414(s) compensation during one of the periods described in paragraphs (2) through (4) of this definition. Whichever period is selected must be applied uniformly to determine the plan year compensation of every employee.

(2) Plan year. This period consists of the plan year.

(3) Twelve-month period ending in the plan year. This period consists of a specified 12-month period ending with or within the plan year, such as the calendar year or the period for determining benefit accruals described in §1.401(a)(4)-3(f)(6).

(4) Period of plan participation during the plan year. This period consists of the portion of the plan year during which the employee is a participant in the plan. This period may be used to determine plan year compensation for the plan year in which participation begins, the plan year in which participation ends, or both. This period may be used to determine plan year compensation when substituted for average annual compensation in §1.401(a)(4)-3(e)(2)(ii)(A) only if the plan year is also the period for determining benefit accruals under the plan rather than another period as permitted under §1.401(a)(4)-3(f)(6). Further, selection of this period must be made on a reasonably consistent basis from plan year to plan year in a manner that does not discriminate in favor of HCEs.

(5) Special rule for new employees. Notwithstanding the uniformity requirement of paragraph (1) of this definition, if employees’ plan year compensation for a plan year is determined based on a 12-month period ending within the plan year under paragraph (3) of this definition, then the plan year compensation of any employees whose date of hire was less than 12 months before the end of that 12-month period must be determined uniformly based either on the plan year or on the employees’ periods of participation during the plan year, as provided in paragraphs (2) and (4), respectively, of this definition.

[Guest Enda80]

since my mind mentally can't handle how to calculate the following:

Plan year runs 7/1/07 - 6/30/08

but comp for allocation purposes is calendar year comp. thus the comp for the calendar year ending within the plan year is zero.

immediately eligibility. ee hired in 2008 and so enters in 2008. and is there on the last day of the plan year.

plan is top heavy.

so his top heavy minimum is zero?

and if plan was tested for nondiscrim he shows as zero?

and for coversge he got nothing though he is eligible?

Does indeed represent a sticky situation.