Include in ADP Test?

[Guest Giovanni]

An employee's entry date for the 401(k) plan is 1/1/04. He terminates on 12/26/03. Yet, the paycheck for the payroll period ended 12/26/03 is paid on 1/2/04. Could that person have made a 401(k) contribution for that payroll period ended 12/26/03? In my case, he did not. Should he be on the 2004 ADP test with a 0% deferral rate? Or is he excluded from the 2004 ADP test because he physically did not work in 2004?

[Tom Poje]

The new regs say:

1.401(k)-2)(a)(4)(A)

an elective contribution is considered allocated as of a date within a year only if

1.401(k)-2)(a)(4)(B) the elctive contribution relates to compensation that

1.401(k)-2)(a)(4)(B)(2) is attributable to services performed by the employee in the year...but ONLY IF THE PLAN PROVIDES for elective contributions that relate to compensation that would have been received after the close of a year to be allocated to such prior year rather than the year in which compensation would have been received.

This is a slight change from the old rules which didn't carry the statement

'but ONLY IF THE PLAN PROVIDES '

now, all that being said, in your particular case the individual could only have deferred on 1/1 or 1/2, but he quit before that date, so shouldn't be on the test at all, totally ineligible.

If ee had been a particpant, then under current law, it appears optional(as long as you are consistent with all ees) whether you would have shown the ee on either 2003 or 2004. when the new regs take effect, you will be locked into what the document says if I understand it correctly.