New Safe Harbor 401K & Terminated Employees

[JToenes]

I have a question regarding a safe harbor 401(k) established in August 2016.  We set the effective date as of 1/1/16 to allow all enrolled employees at 8/1/16 the ability to receive a full year contribution into the plan.  Prior to us establishing the plan, we had two employees terminate their employment (one in February and one in April of 2016).  Now our Administrator is saying that because our effective date is 1/1/16, we have to provide a safe harbor contribution to the two terminated employees even though they were not employed when we established the 401(k) plan.  Does this sound right?  It does not make sense to me.  Any help would be appreciated.   

[K2]

It all comes down to what the document says.  I could certainly see this being an outcome, in fact the likely outcome, unless steps were taken in advance to keep them out.  It's possible the document could have been drafted to accomplish all your goals, but that's water under the bridge at this point, you have to go by what the document says.

[Mike Preston]

And if the document is not determinative, then the Plan Administrator has to interpret the provisions accordingly, paying attention to the fiduciary duty to administer the plan properly under ERISA.

[Mr Bagwell]

JT,

It sounds like the plan was going for a 1/1/2016 to 12/31/2016 Limitation Year with a short plan year of 8/1/2016 to 12/31/2016.  With this set up you can use the full year compensation for those that entered 8/1/2016.  But, for some odd reason, the plan effective date was set for 1/1/2016.