A defined contribution plan had a full plan year from 7/1/00-6/30/01 and a short plan year from 7/1/01-12/31/01.

Employee A worked 400 hours each 6 months - 7/1/00-12/31/00, 1/1/01-6/30/01, and 7/1/01-12/31/01, but terminated employment 12/21/01 and did not receive a contribution allocation for the short plan year due to a last day requirement.

For coverage testing purposes, is Employee A an excludable employee for the short plan year due to being a terminated participant with 500 or fewer hours of service? or does the 500 hour level have to be prorated (to 250 in this case), so that Employee A would not be an excludable employee?

The 410(B) regulations do not contain any provision to pro-rate the 500 hour category of excludable employee. Given your example, since the employee did not benefit during the short plan year and had less than 500 hours, he may be considered an Excludable Employee.