New Plan - SPY-Limits on Compensatin and contributions

[Pammie57]

we have a 401(k) plan effective 7/1/2014 - the owner makes well over 260,000 - isn't his compensation limited to 130,000 and are his contributions limits halved as well? We think his Safe harbor 3% is based on the 130,000 but an actuary says he is able to receive 52,000 total in contributions for 2014. Im researching, but need some feedback and cites if possible. Thanks.

[Tom Poje]

maybe yes, maybe no, but you probably want something more specific than that so....

what was beat into me years ago....

how does the document define 'limitation year'
Under definitions, one document has the following:
"Limitation Year" means the year specified in the Adoption Agreement for purposes of determining Annual Additions limits pursuant to Article 5. All qualified plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different 12-consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made.
The adoption agreement for said document is as follows:
5. Limitation Year means:
a. [ ] Plan Year
b. [ ] calendar year
c. [ ] tax year of the Plan Sponsor
d. [ ] other:
NOTE: If A.5d is selected, the limitation year must be a consecutive 12-month period. This includes a fiscal year with an annual
period varying from 52 to 53 weeks, so long as the fiscal year satisfies the requirements of Code section 441(f).
............................
normally a limitation year is 12 months, so even in the case of a new plan, the limitation year is still 12 months, so no prorate. now, if , in the checklist above, 'plan year' is selected, then since the plan year is short, you pro rate things.

.............
1.415(j)-1 Limitation year- unless the terms of the plan provide otherwise, the limitation year..is the calendar year [which of course is 12 months!]

(d) Change of limitation year--(1) In general. Once established, the limitation
year may be changed only by amending the plan. Any change in the limitation year
must be a change to a 12-month period commencing with any day within the current
limitation year. For purposes of this section, the limitations of section 415 are to be
applied in the normal manner to the new limitation year.
(2) Application to short limitation period. Where there is a change of limitation
year, the limitations of section 415 are to be separately applied to a limitation period
which begins with the first day of the current limitation year and which ends on the day
before the first day of the first limitation year for which the change is effective. In the
case of a defined contribution plan, the dollar limitation with respect to this limitation
period is determined by multiplying the applicable dollar limitation for the calendar year
in which the limitation period ends by a fraction, the numerator of which is the number of
months (including any fractional parts of a month) in the limitation period, and the
denominator of which is 12. In the case of a defined benefit plan, no adjustment is
made to the section 415(b) limitations to reflect a short limitation period.
(3) Deemed change of limitation year. If a defined contribution plan is terminated
effective as of a date other than the last day of the plan’s limitation year, the plan is
treated for purposes of this section as if the plan was amended to change its limitation
year. Thus, the rules of this paragraph (d) apply to the terminating plan’s final limitation
year.