Short Plan Year - New Plan

[Pammie57]

We have a plan that started in 2016.  The first year is a short plan year - 12/1/2016 - 12/31/2016.

It is my understanding that both compensation and 415 limits must be prorated to 1/12 or compensation limit is  $22083.33 and the max the HCE can put in is $4416.67 (which encompasses both deferrals and any employer contributions).   he is not age 50, so no catch up.   They want to put $30000 into the plan between the owner and his spouse.   He makes over 265,000 and she makes 45000.  I don't see any way to do that for 2016.   The most I  figure is around 8833. 

Just want some feedback and any guidance on what I may be missing here.  Thanks

 

[Tom Poje]

check the document and see how 'limitation year' is defined.

if it is defined as 'the plan year', then you are limited

if it is defined as 'the 12 month period ending on the last day of the plan year' then no proration of the 415 limit.

same with compensation, if plan uses 12 month period for compensation there is no proration. (for example, the calendar year ending in the short plan year) [see ERISA Outline Book  item 7 of Chapter 15, Part f]

[Pammie57]

Thanks - it is defined as the plan year.  Nothing was put into the plan during 2016 - so I am wondering if we could amend the document to change the limitation year or even the plan year to allow full compensation and full profit sharing.... or is that treading on treacherous waters? don't want to jeopardize the qualified status of the plan...... 

I did not set this plan up so I am not sure why they chose 12/1 as the start date unless they were waiting for the set -up at the "platform"......

 

[Tom Poje]

you are correct, you are not supposed to change things after plan year end.

 

I agree with your calc that 1/12 of 265,000 = 22,083.33

unless you are talking about schedule C income, then 25% of that is 5520.83 for deductibility. deferrals do not count toward deductibility, so that would be 5520.83 in profit sharing