ADP Test in Plan Termination Year

[Guest Giovanni]

What period of compensation should be used in the ADP test for a calendar plan year in which the 401(k) plan is terminated as of 9/30? Should the comp be for the period of 1/1 - 12/31 or 1/1 - 9/30?

[Guest gfowler]

my understanding is that compensation period should be from 1/1 - 9/30 since that is the time the plan was in existence. there is no point including compensation when the plan was terminated.

[Guest hyper]

I think it depends on the definition of compensation in the plan. If compensation is defined as annual compensation, all compensation for the year must be taken into account.

If compensation is limited to comp. earned while the participant is eligible to contribute, plan termination ceases the eligibility to contribute and thus ceases the requirement to count compensation.

Terminated plans must continue to follow the plan provisions and meet the requirements of a qualified plan as long as there are assets in trust.