Missed Deferral Opportunity?

[sb0828]

The plan document for a new 401k plan is written with a January 1, 2022 effective date, even though the deferrals do not commence until a date which is later than January 1, 2022, in order to avoid an initial short Plan Year, and the plan document does not include a special effective date for the deferrals.

Does this result in a missed deferral opportunity?

[MoJo]

When was the document signed?  Deferrals can never be made retroactive, so at most, the deferral opportunity would start when the document was signed - and then, there is some "administrative leeway" in order to begin deferrals....

[BG5150]

Also check the document carefully.  Even though the effective date of the plan may be 1/1, the effective date for the deferrals may be a different date.  Sometimes it right up top, sometimes in the deferrals section of the document and sometimes in the Administrative Procedures section.  If you are not sure where it might be, check with your document provider.  They will tell you.

[Lucky32]

I would imagine a missed deferral opportunity only occurs for participants who were not informed that they were eligible to defer as of 1/1/22.  In other words, a plan should  not be forced to have a short initial year if (for example, in a small plan) all the participants were given the timely chance to defer but none elected to do so at the earliest opportunity, provided the document was signed by 1/1/22.

[thepensionmaven]

Although 2x the paperwork, if the entry date of the plan are 1/1 and 7/1 and a participant will not be contributing right away, I will get them to sign an election form with 0% or $0.  Since they are already participants and my doc says you can make a deferral change at any time, when they start contributing, we do another election for but mark it as a "change."

This comes as a result of representing many clients at IRS audits.