Can a plan elect the safe harbor provisions if bonuses are excluded fr

[Guest M.L. Martin]

Plan document allows for different definitions of compensation for deferrals, match & p/s and has an option for determining whether or not deferrals are taken from bonuses.

Client has elected to allow 401(k) deductions on bonuses but wants to know if they have to match those contributions? Can bonus comp. be included for deferrals but excluded for match and p/s purposes and the plan not run into problems?

At a future date would they be able adopt safe-harbor provisions to avoid ADP/ACP testing if this exclusion were allowable and in place?

[Guest earthy]

I don't see clear guidance on this whole issue under Notice 98-52 nor in Notice 2000-3. However, it is noted in my materials from Canan that the "definition" of compensation must conform to the definition provided for under Treas. Reg. 1.401(k)-1(g)(2).

The treasury regulation noted above makes only citation to the "non-safe harbor" rules and in allowing the Plan (safe-harbor or otherwise) to limit the types of compensation which may be deferred provided that each eligible employee is permitted to make "deferrals" under a definition of compensation that meets the requirements in Treas. Reg. 1.414(s)-1(d)(3).

This would be a good question to raise with the IRS EP/EO division author who wrote IRS Notice 98-52.

Good luck..

[MWeddell]

My recollection is that one could use any definition of compensation that satisfied Code Section 414(s) for safe harbor contributions. You'd have to do some general 414(s) testing at least once every three years though.

[Guest earthy]

... and performing a general test under 401(a)(4) every three years for 414(s) purposes defeats the whole idea for the "safe-harbor" to begin with.

You don't want to have to do any testing - correct?

As the IRS if the 401(m) and/or 401(k) safe-harbors may still be met when using the non-safe harbor comp. approach from the 401(k) regulation I cited previously.