Allocation Hours for First Short Plan Year

[Vlad401k]

We have one plan that has an allocation condition for profit sharing contributions of 1,000 hours. However, the plan started towards the end of the year (in existence for last 4 months of the year) and everybody worked on 700 hours or so. Are the allocation hours prorated (to 333 hours in this case)? The plan document provides no guidance on this issue.

Thanks.

[Bill Presson]

Typically the document will describe the steps. However, it's pretty common for a new plan to have a retroactive effective date to the beginning of the year. That means there is no short limitation year. Is that not the case here?

[rcline46]

VLAD - notice that 'limitation year' if what you are looking for, and all documents defined limitation year, including the first year of a plan.

[Vlad401k]

For this plan, the effective date is actually the same as the adoption date (8/1/2015). Everyone worked less than 1,000 hours as this is a new plan, but the Profit Sharing contribution requires 1,000 hours. It does not appear that the document provides guidance in regards to this particular issue, but do you think the allocation condition hours requirement can be pro-rated in this case?

[Soundbc1]

As Bill and rcline46 pointed out, look for definition of "limitation year", you'll need to know that to also determine if you pro-rate 415 and compensation limit. It will usually be defined as "plan year", "calendar year", or "twelve month period beginning _______"

[Vlad401k]

So, if the "limitation year" is defined as "plan year" and the first plan year is a short plan year, then the 415 limit, 401(a)17 limit and the allocation hours get pro-rated. Is my line of thinking correct here?

[Mike Preston]

You need to follow the terms of the plan. It won't be the first time that a plan was designed such that when all is said and done, nobody is eligible for an allocation.