First plan year - ADP testing compensation

[shERPA]

New plan for 2014. Effective date of plan per the adoption agreement is 1/1/14, however the plan was not adopted until 5/5/14 and deferrals started after this date.

Can we use compensation from 5/5 or must it be from 1/1 for the ADP test?

Here is the document language from the ADP testing section of the plan:

The amount of Compensation taken into account for an Employee who is an Eligible Participant at any time during the Plan Year, including the first Plan Year, equals the total Compensation received by the Employee for the Plan Year (whether or not the Participant was an Eligible Participant for the entire Plan Year). Notwithstanding the foregoing, if the Administrative Committee has elected to have Compensation calculated only for the portion of the Plan Year that the Employee was a Participant in the Plan, then such definition shall be applied

hereunder.

So what does it mean to be a "Participant"? Their entry dates are 1/1, but the plan (and particularly the CODA) did not exist until 5/5/14. Thanks.

[Tom Poje]

What I learned was that you could use either, as long as you are consistent.

(1.401(k)-6 Compensation - must be either the plan year or the calendar year ending within the plan year....a plan may limit comp to that portion of the year a participant was eligible.

so I would read the first sentence to say "If the effective date was 5/5, you use either 5/5 comp or you could use 1/1 comp based on the calendar year falling within that year.

If the effective date is 1/1, since date of participation is 5/5 then that is permissible as well.

ERISA Outline book agrees- at least for the first case in which the effective date creates a short year, example 7.h.2