Can a final average ever be higher than the average of the 401(a)17 limits for the years considered in the average?

[Guest elem]

A plan's definition for final average compensation is the average of the highest 60 consecutive months out of the last 120 months.

A highly paid participant has less than 60 months of service. The participant earned $40,000 for two months in 2003, $210,000 for 12 months in 2004, and $100,000 for 5 months in 2005.

Should the average be (40,000 + 205,000 +100,000)/19*12 = $217,894, or should it be limited to the (210,000 + 205,000 + 200,000)/3 = $205,000?

Thanks

[Mike Preston]

Neither?

It depends on the definition of a17 compensation in the plan. Certainly, it can never be more than the a17 limit. The only question is what is that limit?

Assuming the plan applies annual compensation limitations, you would indeed limit it to $205k. If the plan, however, implement a17 on a pro-rata basis, by month, I think you are stuck with 12 * ($35k + $205k + 83333.33) / (2 + 12 + 5) = $204,210.52.

What does your document say?