New Plan Setup - Plan Year For Safe Harbor With Automatic Increase

Just looking for advice on a new Plan setup.

We are installing a new Safe Harbor 401(k) Plan with automatic enrollment and automatic increases.  Generally, in the past when we've installed a new plan we've always gone with the first day of the Plan being January 1, even if it was signed during the Plan Year.

My question is, under the new Secure 2.0 rules is there a reason not to use a 1/1 start date and instead use 11/1 for a short Plan Year?

Thank everyone!

It would be helpful to get more details about the plan and which new Secure 2.0 rules that may be applicable.

If this is a brand new plan, the 401(k) feature must be in place for at least 3 months during the plan year.  Since you are talking about a calendar year plan, the 401(k) feature  needs to be implemented before October 1st (which is this Sunday) with deferrals started on the first payroll in October.

If you mean "effective date" when referring to "start date", it is common to use 1/1 so compensation for the entire calendar year can be used for calculating employer contributions and for compliance testing.  The compensation limit is pro-rated for a short plan year, and the 415 limit is pro-rated for a short plan year.

These are just a couple of examples and there are additional potential issues to consider depending on the details of the plan design.

I believe you can set up a safe harbor with a 10/31/2024 year end, and amend to a calendar year plan for 1/1/2025.  As long as the first year, the short year (11/1/2024 to 12/31/2024), and the following year are all safe harbor there should be no concern for losing the safe harbor status.  This way you can still get in some deferrals for 2023 if that is a goal.