Changing a fiscal year plan to a calendar year plan with the plan sponsor remaining on the fiscal year

[Guest Diane DuFresne]

Currently have a 3/31 non-safe harbor 401(k) plan, which coincides with the plan sponsors year end. Due to the complexities of data gathering and testing issues (plan is using calendar year compensation), we are considering encouraging the plan sponsor to change the date of the 401(k) plan to a calendar year plan. I have come up with the Pros and Cons of the change as follows:

Pros: 1)more easily understood by the plan participants as the annual statements will include the same information as the W-2, 2)administration/testing of the plan will be less complicated 3)margin of error providing census information will be lessened

Cons: 1)Plan amendment will be necessary with notification to participants necessary, 2) plan modifications will be requried, such as entry dates will need to be changed to 1/1 and 7/1, from 4/1 and 10/31 3)analysis will be needed to determine effects on vesting and employer deductibility of contributions.

This plan was subject to audit in prior plan years but is currenly in the exception stage due to a decrease in plan participants. The count will rise within the next year and will then again be subject to audit.

Am I overlooking any issues I should be addressing with this type of change? Any thoughts would be appreciated.

[BG5150]

Cons (?)

(4) Testing of short year will have to be done.

(4)(a) Some limits are prorated

(5) 5500 for short year will have to be done.