ADP testing on new plan

[Belgarath]

I think I'm suffering from some sort of brain cramp. Probably normal Monday morning...

New plan for 2015, non-safe harbor, current year testing. Deferrals were not permitted until, say, July 1.

When running the ADP test, is it run using full year compensation, or compensation only from July 1? There's technically no short year.

While it seems "reasonable" to only consider comp from July 1, I'm not finding regulatory support jumping out at me - but then, I'm probably missing something. Thanks!

Hmm - under 1.401(k)-6, the 414(s) compensation may be limited to the period the employee is eligible, provided it is applied uniformly, etc...- but I would think that this would require the plan to exclude "pre-participation compensation" in order to use only comp. from July 1. Thoughts?

[Kevin C]

If your plan document doesn't restrict what you can use, you should be able to use any 414(s) compliant compensation definition for testing. Our VS document has the following in the definition of Testing Compensation:

In determining the Testing Compensation used for purposes of applying the nondiscrimination and ADP and ACP Tests, the Plan Administrator is not bound by any elections made under AA §5 with respect to Total Compensation or Plan Compensation under the Plan. Thus, the Plan Administrator may use Total Compensation or any other nondiscriminatory definition of compensation under Code §414(s) and the regulations thereunder. The Plan Administrator may determine on an annual basis (and within its discretion) the components of Testing Compensation, provided such definition is applied consistently to all Participants.

[Belgarath]

Thanks Kevin - unfortunately, ours (Sungard VS in AA format) doesn't have quite such a clearly flexible piece of language. To paraphrase a bit, ours says that for purposes of the ADP test, the period for determining 414(s) compensation must be either the Plan Year or the calendar year ending with or within the Plan Year. It then goes on to say, "An Employer may further limit the period taken into account to that part of the determination period in which an Employee was a Participant in the component of the Plan being tested."

The plan in question does exclude "pre-participation" compensation in the component of the Plan for which the definition applies, so it seems quite reasonable to test for ADP from July 1 only, but I do have a query in to Sungard to see if they concur.

[Tom Poje]

even the IRS says you can't defer on 'prior' comp. since it was impossible to defer on those amounts, I'd hold you could ignore those amounts of comp. this is different than a situation in which someone could have deferred, but simply started deferring later in the year.