Plan Year vs. Fiscal Year

[MjInvestments]

I just got into the retirement plan space, so I've never been asked anything like this.

I have a client who is looking for the regulation that states a Plan year can be different from the company Fiscal Year. Is there a regulation that states this is allowed or a DOL/IRS ruling or guidance I can point to?

[Lou S.]

Maybe the 404 regs that detail the deduction methods you can use when the Plan Year and Fiscal Year are not the same? - PYB, PYE or proration.

I believe a Plan year can been any 12 month period (or a 52/53 week year). I used to see a number of plans that ran 12/31/xx to 12/30/xx+1 Plan year to delay the effective date of most regulations by 1 year.

I think somewhere in the regs it states that a Plan year can be any 12 month period (unless you have a short PYE!) but I'd be damned if I know the citation.

[Belgarath]

You might try looking at 1.415©-1(b)(6)(i)(B), this says that the contribution can be treated as an annual addition for a prior year if it is made no later than the 404(a)(6) period that applies to the taxable year in which the plan year ends. This is the closest thing I know of to giving you a reference that says it is OK.

[Tom Poje]

as Lou point out it is buried in 404
for instance 404(a)(3)(A) says
in the taxable year when paid, if the contributions are paid into a stock bonus or profit sharing trust, and is such taxable ends within or with a taxable year of the trust

so the plan year could end with the tax year but there is no reason it has to, as the code says it could end within the plan year.

if they had to be the same, then no company could adopt a SIMPLE plan unless the fiscal (or tax year) ended 12/31.

in fact, I suppose you could state a short plan year (at least due to plan termination) would be impossible because the plan year wouldn't match the fiscal year of a company.

[ESOP Guy]

As a practical matter the very few times I had to deal with this I seem to recall it was more trouble then it was worth.

Constantly making sure deposits were made on time to deduct and 415 limits and so forth worked out. It has been a long time but I think the reason you don't see this much is it isn't very practical.

[My 2 cents]

It has been my experience that plan years and fiscal years sometimes do not match. In fact, they appear to differ fairly often (perhaps as often as not). From this I conclude that it is permissible (logical, no?).

Working primarily within the defined benefit sphere (where the deduction limits are often so high as to be irrelevant), the impact is mainly in having to perform funding valuations as of one date and the accounting valuations under ASC-715 as of another. The carefully gathered census data as of the funding valuation date may be used (with suitable adjustments) as of the end of the fiscal year without the need for a second annual data collection.

[Tom Poje]

I should have added on my comments

my brain simply doesn't work very well on non-calendar year plans, much less if the plan year and fiscal year don't match.

[Bill Presson]

If a plan year and employer fiscal year don't match, I find it more common that the plan year is calendar year and the employer fiscal year is not.