Short plan year, what hours to prorate?

Short plan year 2020.  Plan terminated 6/30/20.  ER wants to do PS.  Has last day/500 hr rule.

Does that 500 hr threshold get prorated to 250?

Due to the profit sharing contribution being discretionary under the current plan terms, the employer can choose whatever rule they want to make the contribution.

Inherent in the above answer is the concept that the plan document will need to be tweaked.

My only question is:  does the 500 hour rule get prorated to 250?  It's important in that we have someone who terminated with 450 hours.

The ER has limited discretion in that she can do an 11-g amendment to add people if she wants.  Other than that the contribution is defined by the plan doc.

BG - I believe that it should be spelled out in your plan document. If the document says that the requirements for an allocation are "proportionately reduced" or some such language - so that in your case, apparently 250 hours would suffice to get a contribution - then I think you can't rely on the 500 hours to consider this person an "excludable employee" under 410(b). At least, that's my recollection.

1 hour ago, Belgarath said:

BG - I believe that it should be spelled out in your plan document. If the document says that the requirements for an allocation are "proportionately reduced" or some such language - so that in your case, apparently 250 hours would suffice to get a contribution - then I think you can't rely on the 500 hours to consider this person an "excludable employee" under 410(b). At least, that's my recollection.

Without asking you to do my work for me, do you think that would be in  the BPD or the AA?

I'd search your BPD for "short plan year" and see if you come up with anything relevant. Ours says something to the effect of "pro-rate based on days or months" and made in accordance with various DOL regs.

Agree, I'd expect this to be in the BPD.