LLC - Partnership and Plan Comp in year of freeze

[AndyH]

Calendar year Cash balance with no allocation requirements is frozen 2/28/2009.

Is there any answer to how the partners compensation for CB allocation purposes should be determined?

Is it

a. $0

b. 2/12 of what the year end numbers turn out to be

3. Something else?

Thanks for any help.

[jpod]

What does the freeze amendment say, and how does that relate to the plan's requirements for a plan year accrual?

[david rigby]

It depends. Could be a or b, depending on plan wording.

Might also be c if TH issues are in play.

[AndyH]

There are no conditions on an accrual - everybody gets the allocation formula multiplied by their compensation through the freeze date.

The freeze notice says nothing about how to define comp; there is no attempt to do anything one way or another - just to administer it properly.

The freeze language merely says, "“Notwithstanding the foregoing provisions of this Section ....., a Participant’s Accrued Benefit shall not be increased after February 27, 2009.”

and

“Effective February 27, 2009, no additional Eligible Employees (other than those Eligible Employees who are Participants in the Plan on February 27, 2009) are eligible to become Participants in the Plan.”

and the document defines compensation as:

1.11 "Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). Compensation for any Self-Employed Individual shall be equal to such individual's Earned Income. Notwithstanding the foregoing, if compensation for any prior determination period is taken into account in determining a Participant's benefits for the current Plan Year, Compensation means compensation determined pursuant to the terms of the Plan then in effect.

I see nothing addressing how to fit that definition into two months.

[Belgarath]

Does the plan have an hours requirement to accrue a benefit? If so - say it is 500 hours, and the freeze takes place prior to anyone getting the 500 hours, then isn't the compensation irrelevant?

[Blinky the 3-eyed Fish]

Andy already stated there are no accrual conditions. I vote 2/12. I don't see how you do it any other way unless there is a separate acccounting of the earned income through 2/27/09. If that can be done, that too is an alternative.

[AndyH]

Thanks for the comments. I know this question has come up in conferences, but I don't remember any clear answer.