How to run ADP/ACP test when plan year is amended, creating a short plan year

[Guest cohenron]

A plan is amended creating a short plan year by switching from a plan year ending 12/31 to a plan year ending 6/30. What are the ADP/ACP testing requirements? Should tests be done for 1/1 - 6/30 for the year the plan was amended, and then 7/1 - 6/30 thereafter, or should it be 1/1 - 12/31 for the year the plan was amended and an overlapping 7/1 - 6/30 test for the first full plan year?

[Guest SeanT]

Ron, I know you posted your question some time ago and have not received a written response - so I don't know if you've gotten your answer. If not, my suggestion would be to test the short plan year that is created as a result of the year end change (1/1 - 6/30). This does create subsequent challenges:

* Obtaining contribution and compensation data for the 6 month short plan year.

* Determination of HCEs for the short plan year. I would use the previous 12 month period ending on 6/30 (the look-back year).

* Calculation of annual additions for the short plan year.

[Guest crosseyedtester]

Simple follow up question.

What is the calculation of the HCE's for the full plan year after the short plan year? I assume it is based on Compensation in that short plan year. So my bigger questions is, in a 2-month plan year, is a participant HCE for the next plan year if the comp is $15,000 or greater ($90,000/6)?

Thanks.

[Tom Poje]

Always, always, always, forever, in every case you ever see, never vary or change the following:

YOU MUST DETERMINE HCEs USING A 12 MONTH PERIOD.

It is never less than 12 (nor is it more than 12) It is 12. Twelve.

If it is a new company and the prior period is less than 12, well, you still use 12. Probably means no HCEs unless you have owners. If you had a 1 day plan year, you would still use comp for the prior 12 month period. 12. rhymes with delve.

Always, forever.

:

[Blinky the 3-eyed Fish]

Tom, I would like to base the HCE determination on a period of months equal to either two half-dozens or the sum of the angles of a triangle divided by a baker's dozen plus two. Is this possible?

[R. Butler]

Tom, I would like to base the HCE determination on a period of months equal to either two half-dozens or the sum of the angles of a triangle divided by a baker's dozen plus two. Is this possible?

Yes. In both cases its possible.

[Guest crosseyedtester]

Tom - are you sure about that? always x 3 + forever?

One more question -

Can I cross-test the Compensation and look at what they would be making at age 65 to determine if they are HCE now?

[Mike Preston]

No.

[Guest Chaffee]

Tom, I would like to base the HCE determination on a period of months equal to either two half-dozens or the sum of the angles of a triangle divided by a baker's dozen plus two.  Is this possible?

Not to be a stickler, but in the order of mathematical operations, the division occurs before the addition, so:

180 / 13 = 13.84 + 2 = 15.84 months

I think this offends the always + always + always + forever rule.

[Tom Poje]

Blinky:

Temperatute at which water boils 212 degrees

Temperature at which water freezes 32 degrees

subtracting the two you have 180 degrees = the sum of the angles of a triangle.

[R. Butler]

I'm not smart enough to follow order of operations. It was amazing enough that I knew a baker's dozen was 13. (And really why is that?)

Blinky, in the future please put brackets around your numbers.

[Tom Poje]

bak·er's dozen (bkrz)

n.

A group of 13.

--------------------------------------------------------------------------------

[From the former custom among bakers of adding an extra roll as a safeguard against the possibility of 12 weighing light.]

.............

maybe they are actuary bakers and using a setforward?

[Blinky the 3-eyed Fish]

I found it difficult to bracket a word problem. I think a comma placed here would yield 15.85, but I isn't no English majur, so me not fer sur.

"...baker's dozen, plus two."