Pro's and con's of a FY versus CY 401 k plan year?

[Guest BarbaraB]

We currently have a FY for our 401k plan. I am confused by our record keeper using 'crossover" deferrals to help up pass the ACP?ADP and 402G testing? Would a calendar year help prevent this? I'm relative new to the 401k world.

[Mike Preston]

I'm afraid that the term "crossover" with respect to deferrals is not generally defined. Can you be a bit more specific as to what is confusing you?

[Guest BarbaraB]

Certainly--our record keeper- Wells Fargo- uses some of the excess deferrals from one plan year to "crossover" to the next plan year to help us pass the test. I do not see how or why this is helpful. It may help one year pass, but the next year we are over. I am wondering if they are allowed to do this because our plan year is July-June. So at the end of this plan year, we will have to refund some assoicates who are not over their limit 16,500 and catch-up, because some of their last years contributions were carried forward to this plan year.

[Jim Chad]

Instead of cross-over, is it possible they are using the term Catch-up?

[Mike Preston]

I'm still not sure the extent to which these "crossover" deferrals are being used. In general, though, deferrals made in one plan year are not allowed to be carried over to the next plan year. There is a possibility, however, that your payroll periods don't match your plan years. In which case the first payroll that falls within a given plan year will involve compensation, and deferrals, that could, in some circumstances, be attributed to the prior year. Many plans, however, determine their plan year deferrals on the basis of the payroll date and would thus automatically attribute the entire deferral from that first payroll to the subsequent plan year.

Is that what they are doing?

[Guest BarbaraB]

They are taking any catch up deferrals and allwoing them to be used in the next plan year to help us pass the end of the year testing. I do understand the payroll dates and how they correspond. That is what I figured was happening, butnot the case. They "used some 2008 catch up funds to help 2007 pass the test".

Our record keeper has explained crossover to me twice, and I am still not catching, how this is legal or helpful. Let me go back to them again, and see if a better explanantion of crossover. Thanks.

[Mike Preston]

This is probably going to sound basic, but when you go back to them, make sure they spell out the entire year when they cite something, rather than just the actual year they describe it with. For example, above, your "2007" can be either the plan year beginning 7/1/2007 and ending 6/30/2008 or the calendar year 2007 or maybe 7/1/2006 through 6/30/2007. I know, I know. But it never hurts to be safe.