A public company that provides stock options (non-qualified) to its employees shows the gain on these options on the W-2 for the year that the employee exercises the options. They have a 401k plan that has a W-2 compensation as their definition of comp. The question is does the W-2 comp exclude the option gain for terms of census reporting and testing? These are 'wages' that are not technically eligible to defer money from nor are they wages that benefits should be based off of since the dollar amount is only reported for tax purposes and is not technically tangible wages that are received by the employee.

I believe for testing purposes you can use the 415 definition of compensation that excludes W-2 stock option gains. It's the short definition of 415 compensation I believe.