Handling off-calendar-year plans presents some unusual challenges. If you have an off-calendar year plan, for example a plan with a plan year that runs from July 1 to June 30, the limitations that apply are as simple as this.

General Rule
Most of the compensation limitations are based on the limit in effect in the calendar year in which the plan year begins with a notable exception of the annual additions limit (which we will discuss later in this article). For example, assuming that the plan year runs from July 1, 2008 to June 30, 2009, the compensation limit to apply is the one that was in effect for calendar year 2008. Thus, the plan would use the $230,000 limit from 2008 for the compensation cap for the plan year from July 1, 2008 to June 30, 2009.

HCE Determination
The determination of who is an HCE is somewhat complicated because of the requirement that the compensation limit for HCEs is to be determined based upon compensation earned in the look-back year. Let’s look at a calendar year plan example first. For a calendar year plan, the ADP test for the 2008 plan year is run using the look-back year HCE compensation limit. In 2007 the HCE compensation amount was $100,000. Thus, to determine who is an HCE for the 2008 plan year, we need to “look-back” to the compensation in 2007 and use the 2007 limit of $100,000 (not the 2008 limit of $105,000).

An off-calendar-year plan, such as one with a July 1, 2008 to June 30, 2009 plan year will determine who is an HCE based on the look-back limit in effect on the first day of the look-back plan year (i.e. lookback year is July 1, 2007 to June 30, 2008). Thus, the 2007 limit of $100,000 will apply for determining HCEs for the plan year that runs from July 1, 2008 to June 30, 2009.  The $100,000 limit is applied to the compensation earned in the period July 1, 2007 and June 30, 2008.

Note: Plans may simplify this by making the “calendar year” election in the plan document.  If this election were made in the example above, the 2008 limit of $105,000 would be applied.

Annual Additions Limitation
One major exception to this rule is the Section 415 annual additions limitation. That limitation is based on the limit that is in effect on the last day of the plan year. For example, using a plan year from July 1, 2007 to June 30, 2008, the annual additions limitation is the one in effect in 2008. Thus, a defined contribution plan would use the $46,000 limit of 2008 for the annual additions limit test for the plan year from July 1, 2007 to June 30, 2008 rather than the $45,000 limit that was in effect for calendar year 2007. The same is true of the section 415 defined benefit plan limitation.

Elective Deferrals and Catch-up Contributions
The maximum limit on a participant’s elective deferrals is an individual limit based on the calendar year. This is because individual participants are deemed to be calendar year taxpayers. Catch-up contributions are also based on the calendar year.

An ADP failure in which the excess contribution is being recharacterized as a catch-up contribution for an off-calendar year plan, the catch-up determination is based on the plan year-end also. For example, for an off-calendar year plan year of July 1, 2007 to June 30, 2008, if the plan fails the ADP test, you may recharacterize up to the $5,000 catch-up limit for 2008 (note: the 2007 and 2008 catch-up amounts are the same $5,000).

Form 5500
The Form 5500 is also based on the beginning of the Plan Year. Thus, for example, for an off-calendar-year plan year of July 1, 2007 to June 30, 2008, the plan would file a 2007 Form 5500.