Short Plan Year

[Guest ANNEBV]

Calendar year plan; new plan beginning 9/1/00.

What limits are affected by the short plan year and need to be adjusted?

402(g)? 401(a)(17)? 415? HCE comp limits?

[Guest RBeck]

the answer is, it depends. It depends on plan design and definitions used. There's an excellent article in the Summer 2000 Journal of Pension Benefits (Volume 7 #4) starting on page 94 about 401(k) plans and short plan years, which will probably answer most of your questions.

[rcline46]

The document rules! However, by definition there is not a short limitation year (usually) for the first year of the plan, so 415 and 401(a)17 are not affected. Compensation used may be a problem since it could be limited to that earned from date of participation, which is 9/1. Could mess up you tests.

404 is always comp in sponsor taxable year.

[MWeddell]

402(g) is a calendar year limit, so having a short plan year won't matter. Highly unlikely that there's anything in your document to change that.

401(a)(17) limit should be prorated. Document ought to address this but there are also regulations that require proration. Treas. Reg. 1.401(a)(17)-1(B)(3)(iii)(A).

Read document for whether and how the plan year change affects the 415 limitation year. Changing limitation years is tricky, so you'll have to look at those regulations.

HCE compensation depends on what was earned during the prior 12 months before the plan year began. Check your plan to see if your plan determines it instead on a calendar year basis.

[Guest]

document will definately drive things but...

Kevin Donovan's ASPA talk, 1998 (#11) on short plan years

...1.401(a)(17)-1(B)(3)(i) the annual comepensation limit IS APPLIED TO THE COMPENSATION for the plan year ON WHICH THE ALLOCATIONS OR BENEFIT ACCRUALS ARE BASED

(emphasis are his)

thus, for an initial plan year, if comp is defined as the 12 month period, do not pro rate the comp limit.

note that the use of a 12 month period with or within the plan year for purpose of allocation is specifically sanctioned in definition (3) of "plan year compensation" at 1.401(a)(4)-12