First Deferral

[pam@bbm]

Help me settle a disagreement. The payroll period is June 16 to June 30 with the employee receiving their paycheck on July 5 and July 21. The plan entry date is July 1. Should the first deferral deduction be made with the July 5 paycheck or the July 21?

[Lou S.]

We typically treat it as the first pay day after entry so that would be 7/5 but I think at long as your administrative policy is clear and consistently applied it could be either.

[GMK]

Another point of view is that the first deferral is to be from the pay for the first pay period that occurs after the entry date, because that money is earned after one becomes a Participant, not before.

From previous discussions on BenefitsLink, it's not a big compliance concern either way. What Lou S. says is right, be clear and consistent in how the Plan does it, and you're OK.

[EBDI]

If they use compensation from the date eligible in testing, that will include the 7/5 payroll. For that reason, I always encourage my clients to use the first payroll after the entry date to start contributions.

[Tom Poje]

this is no different, perhaps, than a person's last paycheck.

let's say the person quits Dec 27, 2015 and his final paycheck is in January.

he deferred so do you show the deferral in 2015 or 2016?

for tax purposes we know the W-2 shows the deferrals in 2016 and most would show the deferrals on the 2016 ADP test as well unless the document specifically uses the 'paycheck received in the last few weeks'