Final ADP Test - Terminating Plan

[austin3515]

Plan was terminated effective 1/31/2009. What compensation period do I use for the ADP tesT? Just January, or full year pay? I cannot find anything on point...

[Tom Poje]

the regs due say use the compensation definition for the plan being tested. 1.401(k)-2(a)(3)(ii)

since the 401k feature terminated I'd assume that means you wouldn't count comp after that date.

this would be no different than someone who switched from union to nonunion (or vice versa), which as I understand it, you only count the comp for the portion of the year one was eligible.

it would also prevent the owner from deferring the max in January, shutting things down, but then getting the advantage of determining the ADP % based on total comp

but that is only how I would try to reason things out.

[12AX7]

When we terminate a plan, we incorporate into the resolution, definitions of compensation for purposes of testing, top heavy, etc., which is typically for the short period. Testing failures become more difficult to deal with if assets have since been distributed for HCEs.