Eligibility for 1/2 yaer and employer PS contribution.

[Guest IPS]

Hello - Looking for advice on an eligibility question.

A safe harbor 401k with a discreationary match receives three new participants in a plan year. Two new participants (Bob1 and Jeff1) that became eligible on 1/1/2008 and one new participate (Suzy7) that became eligible on 7/1/08. Bob1 started contributing 1/1/08. Jeff1 never completed enrollment paper work until 7/1/08. Suzy7 completed enrollment forms and started contributing when she became eligible on 7/1/08.

Ok. The year has ended and the employer has decided to make a discreationary profit sharing contribution. Should the contribution formula use a full years salary for Jeff1 and Suzy7?

The reason I ask is I have an employee that thiks she is being shorted.

Thank you for your response.

[J Simmons]

What does the plan's provisions about matching specify about whether compensation for the full year or just while a participant for mid-year entrants say? It's probably a matter addressed in your plan. If no special definition of compensation for matching is provided, then it is probably the plan's general definition of compensation.

[Guest Sieve]

If the discretionary PS contribution is permitted by the document (in addition to the discretionary match already permitted by the document), then the allocation formula for the PS contribution, including what compensation to consider, will be based entirely on the PS allocation language contained in the document. Probably is based either on full year comp or comp while a participant in the PS portion of the plan (which may be different from when eligible for a salary deferral). So, check the document--you can't answer the question without referring to that language. (When actual deferrals were first made into the plan will not be part of your determination--although when an employee was first eligible to make those deferrals may be.)

(John posted while I was still thinking . . .)

[Guest IPS]

Thank you. I'll check the SPD and get back to you.

[J Simmons]

If the discretionary PS contribution is permitted by the document (in addition to the discretionary match already permitted by the document), then the allocation formula for the PS contribution, including what compensation to consider, will be based entirely on the PS allocation language contained in the document. Probably is based either on full year comp or comp while a participant in the PS portion of the plan (which may be different from when eligible for a salary deferral). So, check the document--you can't answer the question without referring to that language. (When actual deferrals were first made into the plan will not be part of your determination--although when an employee was first eligible to make those deferrals may be.)

(John posted while I was still thinking . . .)

That's because John posts before thinking.

[PLAN MAN]

A safe harbor 401k with a discreationary match receives three new participants in a plan year. Two new participants (Bob1 and Jeff1) that became eligible on 1/1/2008 and one new participate (Suzy7) that became eligible on 7/1/08. Bob1 started contributing 1/1/08. Jeff1 never completed enrollment paper work until 7/1/08. Suzy7 completed enrollment forms and started contributing when she became eligible on 7/1/08.

Ok. The year has ended and the employer has decided to make a discreationary profit sharing contribution. Should the contribution formula use a full years salary for Jeff1 and Suzy7?

The reason I ask is I have an employee that thiks she is being shorted.

I agree, the compensation to include for Suzy7 will be determined by the provisions of the plan. Either plan year compensation (full year) or compensation only while a participant (from 7/1/08 - 12/31/08). However, the compensation to include for Jeff1 is full year salary, because he initially became a participant on his entry date of 1/1/08. When he completed paperwork has no bearing on this determination.

[Kevin C]

IPS,

While you have the SPD out, look at the eligibility requirements and the entry date. Are they the same for the 401(k) and PS portions of the plan, or different?

[Guest IPS]

This is what I found. It seems vague.

Date of Participation

You will become a Participant eligible to participate in the Plan on the first day of the

first month and seventh month of the Plan Year coincident with or next following the date you

complete one (1) Year of Eligibility Service.

Computing Service

You will be credited with a "Year of Eligibility Service" if you complete at least 1,000

hours of service during your first year of employment. However, if you do not complete at least

1,000 hours of service within 12 months of your date of hire, you will be credited with a "Year of

Eligibility Service" if you complete at least 1,000 hours of service during any Plan Year. .....

Matching Contributions

If you make an Elective Deferral the Company may, in its sole discretion, make a

Matching Contribution on your behalf in an amount determined by the Company.

Complicated provisions of the Internal Revenue Code may also further restrict matching

contributions for highly compensated employees.

Profit-Sharing Contributions

The Company may, in its sole discretion, make a Profit Sharing Contribution to the Plan

on your behalf if you have completed at least 1,000 Hours of Service during the Plan Year.

Profit Sharing Contributions will be allocated to the Profit Sharing Contribution

Accounts of each Participant eligible to share in such allocations in an amount designated by the

Company to be allocated to similarly situated eligible Participants. The contribution will be

allocated to similarly situated participants in the ratio that each Participant's Compensation bears

to the Compensation of other such participants.

Maybe this is outlined better in the actual plan document.

[Guest Sieve]

And, while you have the SPD out, it would be a good idea to turn your attention to the Plan document, too. If the Plan and SPD disagree on these maters, then we (you) have additional issues to deal with.

(John--are you still thinking?)

[Guest IPS]

Compensation

"Compensation" means wages that are shown as taxable wages on your IRS Form W-2.

For any self-employed individual, Compensation will mean earned income. Compensation will

also include any amount you elect to defer on a tax-preferred basis to any Company benefit plan.

Compensation will exclude all of the following items (even if includible in your income):

reimbursements or other expense allowances, fringe benefits (cash and noncash), moving

expenses, deferred compensation, and welfare benefits.

No more than $225,000 (in 2007) of Compensation may be taken into account in

determining your benefits under the Plan.

[Bill Presson]

Compensation

"Compensation" means wages that are shown as taxable wages on your IRS Form W-2.

For any self-employed individual, Compensation will mean earned income. Compensation will

also include any amount you elect to defer on a tax-preferred basis to any Company benefit plan.

Compensation will exclude all of the following items (even if includible in your income):

reimbursements or other expense allowances, fringe benefits (cash and noncash), moving

expenses, deferred compensation, and welfare benefits.

No more than $225,000 (in 2007) of Compensation may be taken into account in

determining your benefits under the Plan.

See if you can find something titled "Compensation while a Participant." Or similar.

[J Simmons]

IPS, does the provision of your plan documents that address the discretionary match specify how that match would be allocated? That would be the place I would start, and then look back to definition of any defined terms used i the match allocation provision.

[Guest IPS]

I don't see anything separte for the profit sharing portion of the plan or a specific formula in the SPD.

I appreciate your help with this. Your response has been exceptional. I humbled. Unfortunately, I have to go. I will kep looking an try to post what I find tomorrow. Thank you again.

[K2retire]

The language that you are looking for is not likely to appear in the SPD -- go to the adoption agreement.

[Guest Jennyb473]

I agree with K2 - check the adoption agreement. Entry requirements, compensation definitions and allocation requirements should be pretty well spelled out in the AA. I always go there first, SPD does not give the detail we need to administer plans.

[BG5150]

That's because John posts before thinking.

That made my day!

To the OP: can you go back to the organization which wrote the plan? Maybe it can tell you where to look in the plan/AA for the guidance you need.