Latest date to start Deferrals - new calendar year Plan w/ Non-HCE

[SomeQSomeA]

What are people's thoughts about starting a new 401(k) plan (or adding a CODA to a PS only plan) , when the deferral effective date occurs late in the year, after October 1.

Clearly it is permissible until October 1(for a calendar year plan), as evidenced by the 3 month rule written into the SH regulations.

What about for non-safe harbor plans? Effective availability for benefits, rights, and features?

I'm not concerned about an employer that is 100% highly compensated, nor am I concern about an employer with zero highly compensated. I'm concerned about a classic small employer with a mix of highly and non-highly compensated employees who would be eligible to participate in the plan.

I have my thoughts on the subject, but I'm curious to hear others' thoughts.

[Bird]

We've set up plans late in the year and had the owner(s) defer 5% using the deemed 3% for NHCEs rule, and kicked in with a safe harbor the next year. Never gave it much thought as not being ok.

[401king]

What issues are you thinking of specifically? As far as availability, it'd be open to 100% of the eligible NHCE and 100% of the eligible HCE.

I can't think of an issue that non-discrimination tests wouldn't suss out, but it's the first time I've thought about this.

[John Feldt ERPA CPC QPA]

If you set it up to begin on December 31, and only the owner will have compensation (year-end bonus) paid that day from which a deferral can be made, then I think you have a problem for that plan year ending December 31. Assuming you have some NHCEs that would have been eligible to defer if they had also received wages on December 31.