Pro-rated limitation year (Sec. 415)

[Lori Friedman]

When there's a change in the end of the limitation year, the Sec. 415 limit is prorated for the resulting short year. This rule is very clearly described in Reg. Sec. 1.415-2(b)(4).

But, I've never seen a similar rule for a short year resulting from plan termination.

Example: A plan terminates on 03/31/05. Both the plan year and the limitation year are the calendar year. For this short, final year, does the plan get the full, 12-month Sec. 415 limit? Does it make any difference whether there's a successor plan?

Any words of wisdom will be most appreciated.

[Guest Bob K]

Lori:

Unless the assets are paid, out there is no short plan year requiring pro-rating (when you file the Form 5500 you would use the full year).

The 2004 ERISA outline book discusses this in Section 5.18, however, Sal does not provide a cite for this interpretation.

Hope this helps,

Bob

[Blinky the 3-eyed Fish]

Is this a DB or DC plan?

[Lori Friedman]

Defined contribution plan - Profit sharing with a 401(k) provision.

Actually, a short limitation period normally doesn't affect the dollar limit under a DBP. A particular year's contribution to a DBP isn't a factor in computing the plan's limit for the pension payable to any plan participant.

[AndyH]

My favorite words of wisdom are Let it Be.

For no reason other than common sense, I'm with Bob K on this. I don't think there really is a short plan year except for filing of 5500 forms etc. so I don't see any proration issue.

Lori, when are we going to see Theo's Plan B/C for pitching? Before July I hope.

Blinky's other former pitcher is going to be in commercials soon about hitchhiking to NYC to break the curse of A-Rod.

[Lori Friedman]

Thank you, everyone, for your help.

Andy...how nice to hear from you. I hope you're having a great New Year so far. I was absent from this message board for at least a month or so. I was preoccupied with the holidays, followed by my laser eye surgery in early January.

[Blinky the 3-eyed Fish]

Actually, a short limitation period normally doesn't affect the dollar limit under a DBP. A particular year's contribution to a DBP isn't a factor in computing the plan's limit for the pension payable to any plan participant.

Lori, if this was a DB plan you would have pro ration issues as outlined in Rev. Rul. 79-237.