Overlap between last payroll and plan termination date - how to process deferrals?

[t.haley]

Employer is terminating 403b and profit sharing plan effective 10/31.  Last payroll runs from 10/20 to 11/2.  My understanding is that only compensation paid prior to plan termination can be used to calculate deferrals and employer matching.  Payroll provider is telling me they cannot split the last payroll check between 10/20-10/31 and 11/1-11/2.  Is this a situation where we have to find a solution or is there another way?  I thought maybe we could put language in the termination amendment that the last payroll to be included will be the payroll period ending 10/19, but its my understanding that because employees have elected to have deferrals withheld we have to withhold those deferrals until the plan is terminated (10/31).  Is there an exception to this rule (if I'm correct) for terminations?  Any thoughts/guidance is appreciated!!

[Bill Presson]

Assume the termination date is 12/31 and you have a similar situation straddling that date. How would you handle it?

Typically the check date controls when pay is considered earned and to what year it applies. Your plan could be different so you have to read it and the termination amendment. 
 

But if it was my client, nothing paid after 10/31 would count. 

[Bri]

Would it kill them (okay, inconvenience them more than appropriate) to change the term date to 11/3?

[Paul I]

@Bri's suggestion is simplest.  Another approach is to consider clarifying that deferrals will be made from payroll periods beginning before 10/31.

Keep in mind that they can amend the termination amendment to document the whatever approach works best as long as they are not taking away anything from participants.

[t.haley]

Bri-yes that would be the best solution however termination is part of business reorganization and 10/31 termination date is required. 
 

Bill Presson - one thought I have is along the same lines as yours - no deferrals required until paycheck is cut. Because payroll is being cut on 11/02 after plan is terminated, no deferrals are required to be withheld because at that point the plan is terminated and no contributions, including employee deferrals, can be made to the plans. Anyone see any issue with this reasoning?  Any need to include language in the amendment specifying that no deferrals will be withheld from payroll after the termination date?

[Bri]

One last thought - I do think Bill's argument is right - is that perhaps they run one final payroll for everyone on 10/31 so that it's captured before the re-organization plan kicks in.