When is it a short plan year?

[jkharvey]

I want to make sure I understand something. Is there ALWAYS a short plan year (meaning that limits are prorated as applicable) in a termination year if the plan does not terminate as of last day of the plan year?

[Leopurrd]

I don't think terminating the plan itself creates a short plan year, because your plan continues to file forms 5500 until the assets are fully distributed; usually the last filing creates a short plan year when the last dollar leaves the trust. therefore, you shouldnt have to worry about pro-rating any limits, etc.

[Jim Chad]

I think I may be saying the same thing, but I would word it this way.

When you "freeze" a plan by stopping all contributions, you have not terminated the Plan. The Plan is not terminated until the day all assets are out.

If, for exammple, you freeze deferrals in March and pay everyone out in June, I think you would have a short year and in the ADP test you would have to use half of the 401(a)(17) compensation limit. (remember the deferral limit of $15,000 is per calendar year and as nothing to do with length of Plan year )

What does everyone else think?

[Tom Poje]

It still boils down to what date range you put on the 5500. regardless of whether the plan terminates.

this would hold true the first plan year (if you chose an effective date other than the normal full year), if you amended the plan year (e.g. to match your fiscal year), or to the date assets were paid out.