Plan terminating mid year

[30Rock]

A 401k plan terminates 3/31/2011. Question on testing for this short period - it appears that for 415 purposes, you have to pro-rate comp i.e. 3/12 x $49,000 = $12,250. Is this right? And then for ADP purposes, can you use any compensation after the termination date when running the test, or is this also pro-rated? Can you look at comp beyond the 3/31 termination date for ADP?

Thanks!!!

[Tom Poje]

well, 1.415(j)-(1)(d)(3)

says Deemed changed of limiation year: If a defined contribution plan is termianted effective as of a date other than the last day of the plan's limitation year, the plan is treated for purposes of this section as if the plan was amended to change its limitation year.

now, while it says "for purposes of this section" it would seem strange to me to have a deemed change in limitation year to a short year and pro rata things for 415 and not for other purposes.

however, 1.401(k) -6 definitions

Compensation - it says the period used to determine an employee's comp must be either the plan year (short in your case) or the calendar year ending within the plan year. so if you go with calendar year comp then it would not make sense to pro rate the comp for 401(a)(17) purposes.

so that would almost seem to say for 401(a)(17) you don't have to limit the comp.

so the question would be, what is the intent of the purpose of this definition. I'd have my leanings to say that it is not meant to apply in the cases of a terminating plan as you have. - but I can't say that I'm 100% sure of that statement.

[30Rock]

Sounds good Tom!! Thank you