Susan S. Posted April 25, 2023 Posted April 25, 2023 Recently took over a non safe harbor plan and am looking at making two changes to improve the ADP test results. First, the plan has an ACA (not EACA or QACA) and the plan sponsor has agreed to increase the default percentage from 2% to 3% effective immediately. It's a minor change but I figure every little bit helps. Second, the plan uses compensation for the full year and I want to amend to exclude comp before date of entry. Eligibility is no minimum age, 1 YOS, monthly entry. The employer will not be making contributions of any kind this year. Given these circumstances, can the compensation definition be amended mid year, effective for participants entering on or after June 1? There will be no cutbacks with no ER contribution.
Popular Post C. B. Zeller Posted April 25, 2023 Popular Post Posted April 25, 2023 I don't see any reason why you couldn't amend the definition of compensation mid-year for employees who have not yet entered the plan. However, the plan's definition of compensation for allocations does not (usually) control its definition of compensation for testing. You can use post-entry comp for testing without amending the plan. You can also use comp net of deferrals (remember to also net out sec. 125 deferrals if you do this). Just double check that there isn't something in your plan document that would lock you in to a particular definition of comp for testing. If you think about it, though, allocation comp for deferrals is always post-entry comp; you can't defer on comp that was paid before you entered the plan. Susan S., CuseFan, ugueth and 3 others 6 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co
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