Relevant Compensation for suspended Safe Harbor Match

[Young Curmudgeon]

Background Information

-A calendar year plan suspends it's safe harbor match effective March 31. A partner's K1 is $50,000 and their salary deferral is $9,000.

Question

For the purpose of calculating the partner's contribution, what is the appropriate methodology for determining applicable compensation and deferrals subject to the safe harbor match? Should both amounts be prorated for the three-month period, or are both the compensation and deferral deemed to be earned/made on the last day of the year providing a zero match for the partner?

[PensionPro]

Is the match being made on an annual (or applicable period) basis or on a payroll basis?

What dates were the 401(k) deferrals made?

Were services performed by the partner throughout the year?

[austin3515]

I would

1) Prorate the k1

2) Use actual deposits for the 401k deposits made. This is important because you don't want to match 401k for the owner if the 401k was made after the SH Match was eliminated.

[Young Curmudgeon]

The deferral elections were a dollar amount per month so we did use the actual period deferrals. We prorated the K1 also. Seemed like the most logical way to go. Had the deferral election been a percentage and not been deposited, I think I would have given them nothing on the grounds the deferrals weren't actually for the relevant period.

[austin3515]

I think you're suggesting that simply because he elected to make a monthly deposit of a fixed amount, even if the deposits were not actually made, you can still include them in the match.

I woudln't do this if I were you. Personally, I would use only actual cash deposits made to the Plan. I guess you could make a case for your approach but I think it would be pretty risky...