Short initial plan year and Top Heavy

[MoShawn]

New plan with an initial effective date of 10/1/07. Plan has 3% SHNEC with additional ps. Using accrued balances, plan is top heavy for 12/31/07.

Document says "For a Participant's initial year of participation, Compensation shall be recognized for the full calendar year."

1 - Is the comp limit pro-rated to $56,250 because of the short plan year?

2 - Are the top heavy minimum and safe harbor contributions based on compensation earned between 10/1/07 & 12/31/07, or is it the full 12 month period ending 12/31/07.

[Tom Poje]

can you find the definition of "limitation year" in the document? I am looking at a Corbel document and found it buried in section 4.7 maximum annual additions. Its defined (at least in the document I am looking at) as "the Plan Year". My understanding then would be it runs from the effective date, and if it was the same as yours you would have to pro-rate the limits. There is always the possibility the definition could have said "the calendar year" or "the 12 month period endong on the last day of the plan year" in which case, at least as I understand things, you would not prorate. (since you indicated that compensation is going to be the full 12 month, maybe that is what you have for limiation year as well.)

even though deferrals didn't start until 10/1, they could have made the effective date 1/1., which of course would have made all your questions/answers easier.

I'm certainly no expert of short plan years, but hopefully that is enough to get you started.

[Tom Poje]

as an added note, I see the new Corbel document defines limitation year in the definition section, and further says for purposes of the initial plan year that the limitation year is the 12 month period ending on the last day (hence no pro-ratio)

[Blinky the 3-eyed Fish]

Tom, isn't the determination as to whether or not the 401(a)(17) limit must be pro rated the definition of the compensation period, not the limitation year?

[Tom Poje]

correct, as usual. my brain was thinking about the 415 limit. maybe it would be better if I was nuked as well - if I had a third eye maybe I could 'see' the stuff you see.