What problems arise when using calendar year compensation for non-cale

[Guest mo again]

We are taking over a cross-tested money purchase plan that has a 11/1 - 10/31 plan year. Eligibility is 1 year, age 21, entry dates are 11/1 or 5/1 following. My question stems from the fact that plan compensation is defined as compensation for the calendar year that ends in the plan year. Also, plan compensation is only for compensation after the entry date.

Consider the plan year 11/1/1999 - 10/31/2000. Its 4/1/2000 entrants will get NO contribution because they have no eliglble compensation. The 11/1/99 entrants will get a contribution based on only two months of compensation. The plan is not top heavy.

For 410(B) and 401(a)(4), will the 4/1/2000 entrant be counted as "not benefiting" and as "0%" for rate group and ABT% purposes? Sadly, they left the limitation year as the plan year, so I won't be able to say that they are precluded from getting a contribution by 415.

Does anyone know of any other issues that arise as a consequence of this definition?

[Guest]

One issue that might come into play (though more so in a profit sharing plan than in a money purchase plan) is deductibility. If I remember, you use plan year comp. This is a real pain in a 401(k) where you have to net out deferrals. I would think this would only coe into play in a 25% money purchase plan (or a combo mp and 401(k) plan)

but it doesn't sound like you have either of those.

[M R Bernardin]

I believe the 414(s) regulations might require you to use something other than calendar year comp for those participants entering mid-year. Take a look.