New 401k Plan

[Guest dannyoc]

Instead of starting a new Safe Harbor plan effective 10-1-10, the employer has elected to start a profit sharing plan effective 1-1-10 so that they can make a profit sharing contribution based on full-year compensation.

For a calendar-year plan, I know that a SH plan must be effective no later than 10-1. Is this for SH only. . or any 401k feature? If it were just to be a normal 401k plan w/ a profit sharing feature - could this still be effective 1-1-10? Or is the only way the Plan can be effective 1-1-10 is if it is profit sharing only?

[Tom Poje]

effective date can always be 1-1-10 (in your example), but you still can't defer on past compensation, only on comp going forward from 10-1 (in your example).

now, under the definition of comp (1.401(k)-6 ) you would use the plan year comp (which, since the deferral didn't start until 10/1) if I understand things correctly means you would prorate the comp limit (if you actually had someone making lots of money for that last 3 month period).

On the other hand, under the definition, you could also use the calendar year comp, which means no proration of the comp limit for testing purposes. so despite the fact you can only defer on comp for 3 months, you could test using a full 12 months of comp. In your case its a safe harbor so there is no testing, but since you asked about 401ks in general....