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415 Limits for terminated plan


cpc0506
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We have a plan that wants to terminate in October.  The Consultant has requested that the amendment include language that the Limitation Year for 415 purposes be the calendar year.  They want to be sure that compensation of $285,000 and maximum allocation of $57,000 will be permitted for the 2020 plan year.

It is our understanding (of the Relius document) that the Plan Year that includes the Effective Date of Plan Termination ends on the Effective Date of Plan Termination.  This provision applies for all plan administration purposes, including the application of the Top-Heavy requirements under Code §416, the limitation year under Code §415 and any allocation conditions imposed by the Plan, in essence creating a short Limitation Year.  And in a short Limitation Year, the limits are prorated.  The "maximum permissible amount" will not exceed the "defined contribution dollar limitation multiplied by a fraction, the numerator of which is the number of months in the short Limitation Year and the denominator of which is twelve (12).

I was hoping that someone else has encountered this issue and can provide some guidance.

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