Brigid

The IRS says the SPD has to be delivered within 90 days after the Participant enters the Plan. If the participant is given the SPD prior to becoming eligible for the Plan, does that satisfy delivery requirements?

The authority is coming from the definition of compensation used. The fact that 3401a is the definition of compensation for the plan, it means that unless you can run the gift card through for payroll processing, which you can't as it is a gift card, then you can't withhold at the source which means you can't set up payroll deductions for 401k, for insurance, for taxes, etc. The only option is to "add it on" to the year end payroll report as an adjustment at it face value of $500 for the employee to pay taxes on. The question was can they deferring on it as it is added back to payroll, and that answer is NO. But for the denominator purposes of determining testing compensation, since fringe benefits are not excluded from the base definition of compensation, the cash value of the gift card is in my compensation figure reported for plan testing. The individual just could not defer on it so if he/she was at 5% 401k amount, at year end, they will be slightly less than that because testing compensation will now include the $500 gift card.

If a Plan uses the definition of pay that is W2 compensation subject to income tax at the source (code section 3401(a)), and the Plan further has no pay exclusions of any type and the basic document does not automatically exclude any types of pay from the definition of compensation, if the employee is given a gift card with a value of $500 that the Employer has to report the cash value of the gift card on the employee’s W2 for the employee to pay income tax on when the employee files his/her tax return at year-end, is the employee eligible to salary defer on this journal entry to the payroll system? This is a taxable fringe benefit that is added-on/provided to the payroll provider at year end for W2 reporting purposes for the employee. Does the answer above change if the Plan uses a definition of pay that is based on code section 6041/6051 (which is income reportable on Form W2)? I believe the answer is NO using 3401a compensation and YES using 6041 compensation. This tends to happen with other taxable fringes that are yearend add backs to the payroll system for purposes of getting onto an employee’s W2. S-Corp Health Insurance and Personal Use of Company Car as two other examples. Thank you.

Thank you so so much Kevin! You have been a great help!

Kevin, I looked at 414(s)-1(d)(2)(iii) but can't find the reference that it does not apply to NHCEs. Can you point me to where in here it says this? Thank you so very much. Brigid

Is it possible to use a definition of compensation that passes 414(s) testing when the plan's design is using a safe harbor enhanced match per pay? My fact set is the plan was designed to exclude pay in excess of $125,000. Since this is a 403b plan, the safe harbor design is used to pass the 401(m) test. The formula is 100% on 4% salary deferred with comp for employees capped at $125,000. Since the only employees impacted by the cap are HCEs, the 414(s) testing passes. But now I am wondering and am getting conflicting answers with some research I am doing that even allows a Safe Harbor plan to exclude any forms of pay even if the exclusions passes 414(s) testing. I will take any help and feedback. Thank you. Brigid