Proration of Salary and Contribution Limits for Short Plan Years (Posted January 8, 2003) Technical Tip 88: The following question and answer were from the IRS Q&A Session at the 2001 ASPPA Annual Conference: My client is a law firm that did a stock swap with larger law firm. The larger law firm wants the plan terminated immediately. My client is putting pressure on me to get it terminated right away. My client is contributing ½ of what they did last year. The attorneys have YTD wages in the $150,000 to $200,000 range through 7/31/01. It is a new comparability plan in which the client designates the dollar amount to go to each group. If I have to pro rate wages and 415 limits, I will get much different results. The limitation year is defined as the calendar year. I think I can use the total wages and 415 limit for the year, regardless of when the assets are distributed. Does the distribution of the plan’s assets before the plan’s normal year-end create a short plan year for purposes of 401(a)(17) and 415(c)? Response: The issue is: When is the termination date? The 401(a)(17) amount will be prorated. There is still a full limitation year, so 415(c) is "not" prorated. The distribution of the assets is not relevant. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.