Because "disability" is defined in the AJCA as 1) or 2), is this something that should be chosen in the adoption agreement, as in The employer choses 2) as the definition it will use to define "disability" in the plan?

I don't think there's a choice here. 409(a)(1) requires the plan to (i) meet "the requirements of paragraphs (2), (3), and (4), and (ii) to be "operated in accordance with such requirements." I read (i) and (ii) as a documentation requirement, and as an operational requirement, respectively.

Then, paragraph (2) provides for permissible distribution events, one of which is disability, as defined in the Act.

As you point out, the Act defines disability as (i) unable to engage in ....... OR (ii) is, by reason of any .......

This is a classic disjuntive definition. Disability means (i) or (ii). Under this scheme, I don't see that the Plan sponsor is at liberty to select that disability means (ii), but not (i), or (i) but not (ii), since the Act states that it could possibly be (i) OR (ii).

Even if the Plan defined disability in only one of the two ways, it would be an apparent violation of the Act not to operate the Plan using both definitions.

That's my read, anyway.