Short Plan Year situation

[Guest PCS Inc]

Yikes! I was just told by a client's attorney that the Plan Sponsor, formerly a 9/30 FYE changed to calendar year as of 12/31/09, thus creating a Short Plan Year for 10/1/09-12/31/09... Another entity that also adopted this plan still has a 9/30 FYE. Is this a problem? Further, this Plan is Safe-Harbor but since we, as the TPA, were not told of this change to the year-end until today, no Safe Harbor Notice for the short PY Ending 12/31/09 or the new PY 1/1/10-12/31/10 was drafted. What do we do now? And finally, I know a pro-rated PS contribution can be made for the SPY, but what about deferrals?

[J Simmons]

Yikes! I was just told by a client's attorney that the Plan Sponsor, formerly a 9/30 FYE changed to calendar year as of 12/31/09, thus creating a Short Plan Year for 10/1/09-12/31/09... Another entity that also adopted this plan still has a 9/30 FYE. Is this a problem? Further, this Plan is Safe-Harbor but since we, as the TPA, were not told of this change to the year-end until today, no Safe Harbor Notice for the short PY Ending 12/31/09 or the new PY 1/1/10-12/31/10 was drafted. What do we do now? And finally, I know a pro-rated PS contribution can be made for the SPY, but what about deferrals?

The plan years may yet end on 9/30 despite the sponsoring ER changing its fiscal years to end on 12/31. A change of the ER's fiscal year does not automatically change the plan years--unless the plan document so specifies (some do). First thing is to make sure that the plan document does or does not key plan years off of the sponsoring ER's fiscal years.

Not sure 100%, but if you had a 401k safe harbor notice for the plan year that was to go from 10/1/2009-9/30/2010, it probably would apply to the short plan year of 10/1/2009-12/31/2010 (if plan years are keyed to the sponsoring ER's fiscal years).

If the plan years are so keyed, and you now have calendar plan years, with the first having started 1/1/2010, you do not have a timely 401k safe harbor notice for it. That would seem to be an uncomfortable consequence of there not having been coordination with you by the sponsoring ER's attorney when its fiscal year was changed. Thus, I would think you are an ADP testing year for PY2010. (If there is no keying of plan years in the plan document to the sponsoring ER's fiscal years, then you're yet on the PYE9/30.)

As for deferrals, the 402g limitation ($16,500 and $5,500 over-50 catchup) apply on calendar year basis anyway--even in fiscal plan year plans. So that's not different.

The limitations affected by the ADP test apply on a plan year basis, and that depends on whether it was a 401k safe harbored year (no ADP limitation, just the 402g one) or if subject to testing, what the non-HCEs average was.

[Guest PCS Inc]

Thanks for your response John! I didn't even think about it that way, I was so thrown by these changes being made without consulting us! So if the Plan Doc defines Plan Year as 10/1 - 9/30, then we can just keep recordkeeping and reporting as we have in the past, using census info from the plan year, regardless of the employer's FYE? Then, if the client decides they would like to switch the plan to match the FY, we can do it in the future and make sure our SH notices correspond properly?!