Off Calendar Plans

[justatester]

Here is a strange one...

Plan year is 7/1/11-6/30/12:

Client provides compensation and contributions for the period 1/1/11-12/31/11. So, basically, we are testing the plan as if it were a calendar year plan. Is this ok?

HCE determination: the client is determining HCEs for the same plan year based on compenation from 1/1/11-12/31/11. Is this ok?

Any thoughts...if this is ok...where would I find it in the regs?

Thanks!

[ETA Consulting LLC]

The plan should have written language to address your situation (assuming the client in following the terms of the plan with respect to the method in which they allocate their contributions).

Good Luck!

[BG5150]

Can you TEST using calendar year data? Or is it just an option for determining the HCEs?

[ETA Consulting LLC]

The Calendar Year option is used for HCE determinations, and even 415 Limitation Years. I've never seen a non discrimination test done to that extent.

If done, it must be reflected in the document. I cannot fathom it.

Good Luck!

[Tom Poje]

Hopefully your document actually says you will use 'calendar year' comp

Sample choices from one adoption agreement:

For purposes of allocating Matching Contributions and Nonelective Contributions, Compensation is determined over the period specified below ending with or within the Plan Year:

[ ] Plan Year [ ] calendar year [ ] Plan Sponsor Fiscal Year [ ] Limitation Year

.............

If I recall corectly, though,comp for deduction purposes is based on the employer's fiscal year, because that is what the employer's tax year is based on.

[BG5150]

Tom, if you use "calendar year" comp, wouldn't you still use plan year deferrals and other contributions in the testing?

[justatester]

Ok...Some wording from the document.

Compensation: the total cash remuneration paid to an Employee for a calendar year by an Employer during the portion of the Plan Year for which he was an active Participant, as reported on the Employee's federal tax withholding statements (Form W-2).

It also defines: "Annual Additions" shall mean, for each Limitation Year, the amount of Tax Deferred Contribuions, Employer Contributions, and Employer Matching Contributions allocated to the accounts of a Participant, if any, for any Plan Year. "Limitations Yar" shall mean calendar year.

Based on this language...I guess it is ok for ADP/ACP testing to be run on a calendar year basis?

For HCE determination, here is what I found in the document: "for the preceding calendar year received Compensation from Controlled Group members in excess of $110,000". Based on Q 14 in 414(q), when calendar year is elected, it seems to mean that the calendar year ending with or within...So for 7/1/11/6/30/12, the calendar year ending within the plan year is 2011...so HCEs are determined based on "calendar year" compensation for 2011.

So, I am testing based on 2011 calendar year compensation/deferrals and deteriming HCEs based on the same compensation?

[BG5150]

If testing and comp and contributions are on a calendar year basis, what's the point of having an off-calendar year plan?

[ETA Consulting LLC]

You should reference the language pertaining to non-discrimination testing in the document. These are merely definitions. A 415 Limitation Year can be the calendar year when the plan year is off-calendar. This does not mean that 415 Compensation is calculated for the same 12 months.

Good Luck!