Reasoning behind plan year

[Guest MissChele]

We have a client who would like to know why plan years cannot be 6 months long instead of 12 months long. I'm not talking about a short plan year to sync up dates with insurance. I would like to give him more that "because the IRS says so." Anyone know the reasoning?

[Guest Sieve]

Since an individual's election to turn taxable compensation into non-taxable compensation is not a favored election by the IRS, cafe elections are permitted just once a year (except under special circumstances), and that is accomplished by permitting a deferral election only before the beginning of a plan year (12 months long). Yes, 401(k) deferral elections are permitted more often, but the distribution of those amounts is limited--and, 401(k) deferrals eventually are taxable when distributed.

And, because the IRS says so . . .

[oriecat]

Because it's a plan year, not a plan half year.

[Chaz]

Because it's a plan year, not a plan half year.

If that's the case, then why do happy hours generally last more than one hour?

[LRDG]

It's based on individual and corporate annual tax filing requirements and related exemptions.

[GBurns]

In my days of old, happy hour was each hour, rather than a specific timed hour. Even if there had been a specfied hour, we would have demanded "do overs" and recounts for as many reasons as there were participants and unpaid tabs. The customer is usually right.

[david rigby]

The customer is usually right.

... exception when the "customer" is the taxpayer.