New calendar year safe-harbor 401(k) plan as of 4/1/02; what time period to use in calculating compensation?

[Jilliandiz]

I have a 401(k) Safe Harbor Plan, that is effective 4/1/02. If the plan document doesn't say to use plan year or participation wages, what do I have to use in this instance. Participants began deferring 4/1/02, do I use wages from 4/1/02 or from 1/1/02, its a calendar year plan?

Thanks.

[Guest jusducki]

I've never seen an Adoption Agreement that did not address compensation (plan or calendar year). I'd check it again, just to be safe. Perhaps there's not an option, just an assumed period (e.g. twelve months from effective date?)...if that's the case, than the compensation used would be from 4/1/ to 3/31. I'd contact the document provider and ask them where compensation is addressed in their doc.

[chris]

Since it's a calendar year plan, I think your choices as to compensation to be used for the safe harbor would be either 4/1/02 to 12/31/02 OR 1/1/02 to 12/31/02. Per an example in the ERISA Outline Book at page 11.365 regarding a new safe harbor 401(k) plan, compensation from the effective date is used. Notice 2000-3 Q-11 says compensation from the effective date MAY be used and thus it will not fail to meet the safe harbor requirements for the entire plan year. That implies that entire year's compensation could be used. However, I would also point out that the plan document should address the compensation to be taken into account. Also, I believe there may be language in the 401(k) Regs which might allow for you to use compensation for the plan year or the calendar year ending within the plan year as long as all participants are treated the same. End result is that you could probably use 1/1-12/31 compensation. Anyone else have any suggestions??

[g8r]

It definitely needs to be addressed in the plan.

You can clearly use the full year or just use compensation from 4/1/02.

If the plan is effective 4/1/02 (thus creating a short plan year ending 12/31/02), and you want to use full year compensation, then make an election to base compensation on the calendar year ending within the plan year and don't exclude compensation prior to entry in the plan. If you base it on plan year compensation, you would only be counting compensation from 4/1 - 12/31.