Average Annual Compensation

[Guest Carly]

What exactly does the phrase "end in the current plan year" mean in the definition of average annual compensation?

I am trying to figure out whether we can base a participant's benefit by the compensation she has earned separately for pre break and post break service. In other words, we would like to amend our current definition of average compensation to accomodate the following situation:

Suppose an employee worked for us for 10 years then left. At the time she left, her average compensation was $40K. Formula at this time would have been 40 x Y% x 10 years.

The employee is gone for about 6 or so years (not sure that it matters how long she is gone) then returns.

The employee works for a while longer (3 years) and retires. At retirement, her average compensation is $50K. If this were it, formula would be 50K x Y% x 3 years.

We would like to amend the plan to apply the average compensation in two pieces.. 40K x Y% x 10 years + 50K x Y% x 3 years. Instead of applying the 50K to the entire 13 years of service.

Is this possible without violating any of the nondiscrimation rules? Any guidance/direction would be greatly appreciated!

Thanks!!

[david rigby]

Possible? Yes. Amend the plan.

But watch out for 411(d)(6). If the plan is integrated with SS, watch out for 401(l) safe harbors.

Advisable? That's a different issue.

An alternative might be to make sure the definition of averaging (over X years) will "bridge" the two periods of service.