New Comp Plan-deduction Issue

[Guest JKATZ]

IF A PARTICIPANT IS ELIGIBLE ON 1/1 BUT TERMINATES BEFORE 12/31(WHETHER 1000 HOURS OR NOT), CAN YOU USE THAT PARTICIPANT'S COMPENSATION TO COMPUTE THE 25% LIMIT EVEN THOUGH THAT PARTICIPANT WILL NOT GET AN ALLOCATION?

THANK YOU!!

[Tom Poje]

depends. to be able to include the participants comp,

1. had to have been actually eligible for the plan, as you indicated.

2. had to have received a contribution/forfeiture. if plan is profit sharing only and has last day rule, then ee got zippo and you can't count the comp.

if plan is a 401(k) then...hmmm...if ee defers, its no problem since that person received a contribution, so you count the comp.

if ee doesn't defer, then no one knows for sure. I always learned you can use his comp because for 410b purposes he is treated as benefitting, he is included in the ADP test, etc, it would seem odd not to use the comp.

the conservati ve approach says he got nothing, so you cant count the comp.