Effective Date for New Safe Harbor Plan

[Susan S.]

We are going to set up a couple of new SH 401k plans, most likely effective 8/1 or 9/1. I saw an old post suggesting that in this situation the effective date should be 1/1, with a separate effective date for deferrals and SH. I assume going this route there are no prorated limits. Is there any down side to doing it this way instead of having a short 1st plan year?

[12AX7]

I agree with your approach. Short plan/limitation years will prorate compensation and annual limitations of benefits. Also, depending on the plan document used, compensation for purposes of calculating the SH contribution may be limited to the period of the plan year that this provision is in effect...although this provision may be more applicable to a SHNEC than a SHMAC calculated on a per-payroll basis.