ADP test and compensation pro rated?

[Guest Tara Curran]

We have a client who had to pro rate compensation for the annual additions limit and a short plan year. When we ran the ADP test, the plan failed using the pro rated compensation. Can the plan use the participant's full compensation for the time the plan was in existence for ADP testing or do we have to use the pro rated salary? For example, a participant had total compensation from August - December of $125,000, but the pro rated salary for annual additions limit is $70,833. Which number do we use for ADP testing?

[jaemmons]

You must use a compensation for ADP testing which meets 414(s) AND is not in excess of 401(a)(17). Therefore, since you have a short plan year and must apply a prorated reduction to certain plan limits (compensation max being one of them) you must use the $70,833 to determine their ADR.