Payroll period crosses plan year changes

turtle

We are changing our Adoption agreement for our Retirement Plan (Money Purchase Plan) Our plan year ends June 30 and our payperiod covers June 30 to July 13. Do I calculate the new rate on the June 30-July 13 work days or start it in the next pay period when all the days are in the new plan year?

Down_the_Middle

It might be a good time to add language to the agreement clarifying that plan changes will be incorporated into the first full/complete pay period. Trying to calculate this for a partial pay period strikes me as cumbersome. In the absence of clarifying the pay period issue, I would think you're obligated to begin calculating the new rate as of July 1st.

Scott Ruth

Check the language in the definition of compensation in the adoption agreement and plan document carefully for the answer to this question. However, generally such plans are written such that compensation is defined as amounts paid during the plan year. Even though the pay period includes one day in June (I note June 30 is a Saturday this year), the employees are actualy paid in July, the new plan year. Thus, this would count as compensation paid in the new plan year.

If the plan document/adoption agreement is not clear, check with the provider of your documents. Their compliance department should be able to help you with interpretation. Also, look at what you've done at the end of a typical plan year as this can occur at any plan year end not just when you change plan years. To the extent you are interpreting the language of the document, you should be consistent from year to year.

Note also that the documents may be written such that a different rule applies for computing hours under the plan, such as to determine whether a particular employee meets the 1000 hour rule for eligibility, vesting, or contributions. Generally, you will count hours actually worked during the plan year -- so any June hours would count in the old plan year even though the employee is not paid for those hours until July.

Again, the actual language of your plan documents will control the answers to these questions.