Changing from fiscal year to calendar year

[gdlfa]

If a plan currently uses the employer's fiscal year (ex: year end of 2/28) instead of the calendar year as the plan year, what affect will this have on compliance testing, etc? Would there just be an administrative effect in terms of calculating deferrals and compensation for testing purposes, or is there something else I am missing? Will it negatively affect the employer in any way?

[Lou S.]

You would have a 10 month short plan year from 3/1 - 12/31.

Hard to say if it will negatively impact the employer. The answer is probably not in most cases but I'm sure someone could come up with a set of facts where the employer would be better off with the Plan running on FYE instead of CYE.

[Tom Poje]

one issue sometimes missed is vesting.

you never prorate hours, always use a 12 month period.

so some hours from one year get counted a second time

Labor Reg 2530.203-2©

... For example, a plan which has been using a calendar year vesting computation period is amended to provide for a July 1-June 30 vesting computation period starting in 1977. Employees who complete more than 1,000 hours of service in both of the 12-month periods extending from January 1, 1977 to December 31, 1977 and from July 1, 1977 to June 30, 1978 are advanced two years on the plan's vesting schedule. The plan is deemed to meet the requirements of this subparagraph.