Short Plan year- full accrual/average comp.

[Guest sueczer]

If you have a short plan year for one month, I cannot find any cites which indicates if I have to prorate compensation or prorate the short plan year service in a Unit Credit formula. For example:

Short plan year 12/1/2010 to 12/31/2010. Participation date is 12/1/2003. The participant has 8 years participation, including the one month short plan year.

High three year average monthly compensation is $10,000.00: a 2% unit credit formula. The accrued benefit as of 11/30/2010 is $1400.00. ($10,000 X .02 X 7).

Is it correct to apply a full year's accrual for the 12/1/2010 to 12/31/2010 short plan year making the participant's accrued benefit as of 12/31/2010 $1,600.00? ($10,000 X .02 X8)

Or is it correct to prorate the service or prorate the comp making the accrued benefit as of 12/31/2010 $1,416.16? (pro-rating service $10,000 X .02 X 7.0833) or (pro-rating comp $1,400 + ($10000 X .02 X 1/12)).

[david rigby]

What do you want the answer to be?

[ScottR]

This should be spelled out carefully in the amendment that changed the PY. I think it's certainly okay to prorate accrual service credit. For comp averaging, I think you may either annualize for the short PY, or change the number of months in the denominator; I would lean toward the latter.

... Scott