Short Plan Year Partnership Compensation Pro Rata

Initial plan year defined in document to be 3/1/20 to 12/31/20.  Calendar plan year.

Partner's earned income is determined to be 300,000.

Is the pro-rata to be:

300,000 * 10/12 = 250,000

or

285,000 * 10/12 = 237,500

Thank you.

For a short plan year the 401(a)(17) compensation limit and 415 limit are prorated 10/12.

I'm not sure, but I thought a partner's earned income is deemed to all be earned on 12/31, so you don't prorate income for a short year but you limit the income according to prorated limit.

My understanding is that partner's earned income is deemed to have all been earned on 12/31/20.

If I am understanding your conclusion, you would say 237,500 is the correct number.  Is that right?

I did search the ERISA Outline book yet unable to locate answers.

Thank you.

Yes, your prorated 401(a)(17) compensation limit for the 10-month short plan year would be $237,500.

The plan document should have language similar to this in the definition of compensation, as related to the compensation limit:

If an Annual Compensation period consists of fewer than 12 months, the Annual Compensation limit is an amount equal to the otherwise applicable annual compensation limit multiplied by a fraction, the numerator of which is the number of months in the short determination period, and the denominator of which is 12.