Prorate Max Comp Limit?

[austin3515]

Plan Sponsor adopts a brand new safe harbor plan with an effective date of 1/1/2011. This is a safe harbor match, which is determined/calculated on a per payroll basis. The Plan Sponsor did not actually Adopt the Plan until April 2011 and 401(k) and match did not actually start coming out of employees' paychecks until May 2011. The owner is self employed and will have schedule C of well over $245,000.

Being that the payroll for 401k and match did not actually start until May, is there any reason I should have to pro rate the compensation limit even though the effective date is 1/1/2011. Meaning (245,000 / 12) * 8) = 163,333.33. My concern is that the nature of the owner's compensation is such that it unfarily benefits the owner, by allowing him to take into account the entire year of pay, while his employees did not have the same benefit.

My concerns would be alleviated if the Plan provided for an annual match, because then everyone would have the advantage of 12 months of pay.

[PensionPro]

It would be reasonable to prorate his comp, not the comp limit.

[austin3515]

I agree, I like that answer a lot...

By contrast, would it be unreasonable not to prorate his comp?

[WDIK]

I think the issue is with the document. Since you can't retroactively elect to defer, the deferral provision of the plan should show an effective date later than the adoption date.

[austin3515]

we're talking just about the match here though?