Last day of Plan year

[30Rock]

We have a plan with a plan year that ends 6/30. This year 6/30 is a Sunday. The contributions has a last day requirement. Would 6/28 Friday be the last day in this situation? This is the last pay date in June. Thanks for any help.

[Belgarath]

No, I don't think so. If, for example, a participant got fired on Friday, participant would not satisfy the last day of the plan year requirement. It would be very unusual for a document to specify the last pay date in the plan year for allocation requirement, although it could - I've certainly never seen it.

[Paul I]

The allocation condition to be an active employee on the last day of the plan year typically applies to employer contributions such as non-elective contributions or matching contributions (allocated annually).  The fact that the last day is on a Sunday is not an issue for employees who are continuing actives.

The common decision a plan administrator has to make is whether an employee formally terminates employment and/or retires on the last pay date (6/28 in the question).  Some plan administrators take the position the last day is satisfied if the employee worked on the last available work day.  Some plan administrators take the opposite position.  Some plan administrators consider the reason for the termination (retirement, disability, voluntary termination, involuntary termination).  Some plan administrators look at payroll practices so if an employee is paid for a pay period that includes the last day of the plan year, then the employee was active on the last day.  Some plan administrators look at how the last day is defined in their health and welfare plans.  Whatever or however the decision is made, it must be applied consistently and uniformly to all similarly-situated employees.

If the plan is top-heavy, the plan could exclude an employee who is not active on the last day from getting the top heavy minimum contribution (if there is one).  Again, be careful that the decision is applied consistently and uniformly.

 

[30Rock]

Great information! Thank you both.

[david rigby]

Also relevant is whether there is, or might be, some regular work hours on that day (ie, without regard to it being a Sunday).

[ESOP Guy]

WE tell clients to set a policy on this based on factors Paul I and David said and document it.   Be consistent is key.

Most of my client what determines it is if there are regular working hours on the weekend the last day is the day of the month.  If no one works on the weekend as a rule they set the policy if you work the last Friday of the plan year that is the last day. 

I have never seen the IRS or DOL challenge either way as long as it is done consistently.