Is there a Short Plan Year in Year of Term?

[jkharvey]

This was discussed briefly in 10/2002 but I need some clarification. Let's say that a calendar year Plan terminates in 6/2003. The termination amendment calls for cessation of benefit accruals (PSP) and proposed date of termination of 6/30/2003. Let's assume that all assets are paid out before 12/31/2003. Based on the 10/2002 discussion on this board is the scenario I have described a short plan year that requires proratioin of certain limits? If so, which limits? Are these correct:

401(a)(17) prorated

SSWB prorated

Vesting Credit prorated

415 limit prorated

[jkharvey]

I need to add a piece of new information to my scenario. The Plan has terminated because the Employer was bought out by another group. In other words, the Plan Sponsor no longer exists.

Thanks.

[E as in ERISA]

I don't know that all of your questions are definitively answered. The IRS informally answered some questions at the 2001 ASPA conference.

See Q&A 16, involving a 7/31 termination. The question was "Does the distribution of the plan's assets before the plan’s normal year-end create a short plan year for purposes of 401(a)(17) and 415©?"

The IRS' answer was: "The 401(a)(17) amount will be pro-rated. There is still a full limitation year so 415© is NOT prorated. The distribution of the assets is not relevant."

Some take a different position and apply the full year 401(a)(17) amount. But that is considered an aggressive position.

Vesting is never prorated. If you do have a short plan year, you consider service during the 12 months ending at the end of the short plan year (so you will double count some months).

I'm not sure if the fact that the busines "no longer exists" affects any part of the answer. But note that there is a difference between the doors being closed and the business being in existence. There is generally a winding down period while the business pays off debts and liquidates assets, etc.