Full year comp for a safe harbor plan? Two scenarios.

[Guest]

A company installs a new safe harbor plan in July with proper notice to employees in May. The 3% nonelective safe harbor is used. Effective date is 1/01/00. Deferrals begin 7/01/00. The 3% safe harbor contribution is made for full year comp. Anyone have a problem with this?

If the effective date of the plan is 7/01/00, would full year comp have to be used anyway for the safe harbor contribution? Thanks.

[Guest JB2]

If the effective date is 1/1/00, I would use the full year to allocate 3% nonelective - or use the portion that the employee was eligible for the plan.

Salary deferral portion -- use 7/00 - 12/00.

If the effective date is 7/1/00, then use 6 months as no one was eligible for the plan prior to that date.

Notice 98-52, IV, B, last sentence "an employer may limit the period used to determine compensation for a plan year to that portion of the plan year in which the employee is an eligible employee, provided that this limit is applied uniformly to all eligible employees under the plan for the plan year."