Testing ADP on a terminated plan

[Guest Melissa Winslow]

I have a DC plan with deferrals only and a year end of 5/31/99. Without going into the messy background, the facts are...

* Sponsor was part of stock sale effective 1/15/98

* Plan year = 6/1/98 - 5/31/99

* Plan termination date = 10/16/99

* Participants deferrals ceased going into this plan and starting going into parent company's plan 1/1/99.

I believe the wages upon which ADP should be tested would be for the period 6/1/98 - 12/31/98. Am I on target on this? Citations would be appreciated.

[Alonzo]

Actually, this is a situation that has more than one answer. The general rule is that a participant's actual deferral ratio includes the participant's entire compensation for the plan year. (See 1.401(k)-1(g)(2)). "Any employer may, however, limit the period taken into account..to that portion of the plan year...in which the employee was an eligible employee, provided that this limit is applied uniformly to all eligible employees under the plan for the plan year for purposes of this Section."

I am assuming, from your facts, that no employee was an eligible employee after January 1.

My suggestion is look at the reg I cited, and choose one of the three options in the reg that gives you the best testing results.

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