MD-Benefits Guy

Thanks BG5150. I have this chart and that's what is driving the question regarding sick pay. Seems like Treas. Reg. § 1.415(c)-2(b)(1) may be providing instructions to include based on standard sick pay (paid by the employer) being classified as wages, yet there is a specific category on the chart/comp grid that says to exclude sick pay.

If a plan uses the simplified definition of section 415, how is regular sick pay handled when run through company payroll? I am seeing some sources that say sick pay is to be excluded, but I am also seeing: Active Employee Sick Pay: Treas. Reg. § 1.415(c)-2(b)(1) defines those standard includible items as the employee's "wages, salaries, fees for professional services, and other amounts received... for personal services actually rendered in the course of employment". Regular sick pay taken while actively employed is classified as regular wage continuation, making it includible under this core definition of wages and salaries.

Just started with a new company and in reviewing their 401k plan, I am seeing that it is a safe harbor plan through Fidelity. Compensation is currently defined as "Code Section 3401(a) wages definition as described in 2.01(k)(1)(B)" with the only exclusion listed as "Reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, all deferred compensation, and welfare benefits." The plan does add back in pre-tax deductions per the summary plan document. The company recently went public, so I think it now makes sense to exclude "The value of restricted stock or of a qualified or a non-qualified stock option granted to an Employee by the Employer to the extent such value is includable in the Employee's taxable income." There is no intent or desire to withhold or match on compensation that results from Stock Option exercises/RSUs. With that said, if we check the box on the adoption agreement to exclude equity transactions as a 3401(a) plan, I think that opens us up to 414(s) testing. While it is is unlikely that this would result in a failure, it could happen if the Highly Comped Employees hold onto their equity and the Non-Highly Comped Employees are exercising. If I modify the plan to use the 415(c)(3) definition, I think this by default would exclude equity compensation. Given that we are only excluding "Reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, all deferred compensation, and welfare benefits" would it make sense to switch the definition to 415? What are the downsides/risks? Thank in advance.

Working with a 401k plan that had mistakenly defined 401k compensation as W-2 wages with no exclusions. This of course, resulted in several defects - not enough was withheld from employee earnings because of the improper definition of compensation. (Payroll team was only withholding from regular wages, OT and bonuses). The plan was amended effective 12/1/25 to exclude several earnings types, including equity income, from compensation. Additionally, the payroll team would not regularly record W-2 stock transactions as they happened throughout the year. Many were held until the last payroll and reported in December, even though the transaction occurred in July/August. As I am going through the process of self-correction, I am left with a couple of questions on how to handle some transactions 1) If an active employee exercised stock in July of 2025, but it was not reported in payroll until December of 2025 (when the plan was amended to exclude stock comp), would that stock transaction be considered compensation for the 401k plan? The option was exercised when it would have been considered compensation, but not reported in payroll until later when the transaction would be excluded? 2) For a terminated employee, similar question. I believe if payment is made within 2.5 months of termination or by end of year (whichever is later), then the payment is to be considered compensation. However, do I use the exercise date or the date in which the payment was made in payroll? Thanks for any help I can get on this one. ,

During a review of payroll deductions and benefits records, I discovered that one of our employees had a missed HCFSA deduction earlier this the year (system/timing issue from when the employee started his employment). If no corrective action is taken, the employee will be about $120 short of his elected annual goal. When I reached out to the employee to make him aware of the situation, he stated he does not want additional money to be taken out of an upcoming paycheck as a correction - he wants to leave things alone. What are my options? Are we required to take the additional $120 before the end of year to ensure that money deferred equals his annual election? If the employee objects, what regulation/statute/article am I pointing him to so that he understands that this is required? Related but separate, If someone misses FSA contributions because they are on unpaid medical leave (not FMLA, but state mandated leave) and underfunds an FSA for the annually elected amount, how should that be addressed? TIA

Thanks guys, I think I finally understand. I was thinking that once comp hit 350k for the year, no additional matching was permitted. Seems like that is not correct. Sounds like matching dollars are still permitted after the comp limit is reached so long as the YTD match dollars don't exceed the calculated max for the year.

Paul I: The example that I quoted does not reference a limit on contributions, it specifically calls out that matching can only be based on the first 280,000 of compensation. The example that you highlighted refers to a participants ability (or inability in this example) to contribute beyond the max comp....it does not address matching. The plan in question does not have any language that would restrict a participant from contributing after they reach the compensation max and I do not see language in the plan documents that would specifically address what to do for matching once the max is reached. Again, the language in the example I provided states that matching should only be done up until the max comp limit is reached.

This snippet from an IRS webpage makes it sound like matching contributions are supposed to stop once the limit is reached. 401k Plans deferrals and matching when compensation exceeds the annual limit | Internal Revenue Service

How are plans typically set-up with regards to employee deferrals and matching contributions once someone hits the 401(a)(17) limit? I believe most plans will still allow contributions once the limit has been reached (I've only seen one that stops contributions), but curious to know how matching contributions are handled once the comp limit has been reached. Do plans have an option to match once the 401(a)(17) limit is reached or must they stop matching? If stopping is a requirement, what section of the law/code dictates that it must stop? Also, if matching dollars must stop at the limit, won't a plan with a true-up negate some of the negative impact a high earner might experience. For example, a plan that matches 100% of contributions up to 6%, wouldn't that provide up to $21,000 in matching contributions in catch-up? So maybe the impact would be the timing of when an employee potentially receives the match? Thanks in advance.

I am working with a company that has defined compensation as W-2 wages with "sign on bonuses" as the only exclusion in their plan documents. In practice, the company has W-2 earnings from several sources that are not being considered for 401k deferrals & match: - GTL imputed income (all employee have this) - domestic partner imputed income - moving reimbursements (reported on W-2) - equity related W-2 income - imputed income from taxable fringe benefits - vehicle allowances Looks like whoever set-up the 401k failed to list several items that should be excluded. The plan has been small enough in headcount historically to not require an audit, however, for 2025 this will be considered a large plan and will require an audit for the first time. Curious to know if anyone has experienced this before and what's the best method for correction. The obvious first step is to update the plan design to exclude the items above, but wondering if the company is going to have to calculate missed earnings for each employee on each paycheck (along with other items) to make a voluntary correction. I am envisioning a long painful process just to determine what was supposed to be deferred for every employee. FYI, the 401k is with Fidelity. Any advice is appreciated.

Thanks everyone for the replies. To give a little more context...I just started with a new company and noticed that ownership was highly concentrated (there are 2 individuals that own more that 80% of the organization). I also know that these 2 individuals have significant ownership stakes in a couple of other companies. While I do not have full details of the ownership structure at the other companies, I do know that the +80% level at my company, creates the possibility for a brother-sister control group to exist. When I notified my boss that we might be unknowingly a part of a control group, she wanted to know which benefit plans would need to be pooled together for testing purposes. I told her I wasn't 100% certain, but that it would definitely include 401k and probably the other benefits that required discrimination testing. I also let her know that this was a very complex matter that exceeded my level of expertise and that we really needed to speak with legal and most likely involve an ERISA attorney. I know there are lots of experts lurking in these forums so I figured it was worth posting. As of now, I think the boss is waiting to hear back from legal.

If an employer is a part of a control group, which benefit plans and test are pooled together for testing? I know 401(k) plans would be tested as one...what other benefit plans?

Employee is terminated on 11/1. Group Health benefits terminate at the end of the month (11/30). Employer uses a third-party administrator for COBRA and sends termination information over to COBRA administrator on 11/14. What is the deadline for the third-party administrator to send out the COBRA election notice - 11/29 (14 days from notice) or 12/14 (14 days after benefits termination) or some other date? I believe COBRA rules state that employers have 30 days to provide notice to plan administrator and 14 days for the plan admin to send election notices. Employers only get 44 days to send notices if they send out their own COBRA letters directly, correct? TIA

Can someone please confirm that the 415 limit is per unrelated plan? If someone participated in a plan for the first part of the year and maxed out their contributions at 23,000 (in 2024) and then went to another job with a 401k plan that permitted after tax contributions - with the new plan, would the participant be able to contribute a total of $69,000. Do I have this correct? Can anyone point me to a US Treasury Reg or IRS document that spells out that the 415 limit is per plan and not by participant? Thanks in advance.

To provide some clarity, I am trying to determine which wages may be counted towards the acquiring company's $345,000 compensation limit. There are three distinct periods under consideration: I. 1/1/24 - 3/18/24 Company A (acquired company) operated independently with its own 401k. I am pretty sure that wages paid during this time would not qualify as wages against Company B's (continuing company) $345,000 compensation limit. 3/18/24 - Company B acquires Company A....cash sale, all outstanding shares of Company A are acquired and Company A no longer trades. Board resolution is signed announcing that Company A's 401k is terminating 3/18/24. II. 3/19/24 - 6/30/24 - Employees of Company A continue to be paid under Company A's payroll system (and tax ID) but are not eligible to participate in either Company A's or Company B's 401k plan. At this point Company A and Company B are in the same control group, but given that Company A employees are not able to contribute to Company B's 401k, I'm not sure how or if these wages should/could count against Company B's compensation limit. III. 7/1/24 - 12/31/24 - Employees from Company A become eligible for all Company B benefits, including 401k. These wages without question count towards Company B's compensation limit. So, the question is...should I and/or II be a part of Company B's calculation for compensation limit.