FAQ 345: Compensation--Compensation cutback for a short plan year

Problem: I have a calendar plan year end, and the plan terminated 8/16/05, so I want to run testing on a short plan year 1/1/05 - 8/16/05. In the Plan Specs, I have shown the PYB 1/1/05 and the PYE 8/16/05 and under Plan Year History I have entered 12/31/04 (designating the following year as a short plan year). How do I get the ADP test to show the prorated compensation for those over the compensation limit? (it should be $210,000 x 8.5/12 = 148,750).

Solution: You need to enter this cutback prorated compensation in the plan specs on the Compensation Definition (COMPDEF) screen in place of the normal $210,000. You will then need to rerun the Limit Compensation calculations to reset the limited comp for the employees. In addition, the ADP/ACP test has its own internal limited compensation calculation, so you need to input the cutback comp in the "Compensation - Maximum" field in the ADP/ACP setup screen.