Definition of Compensation for match

[bdeancpa]

When calculating the 3% match for a SIMPLE plan do you include deferrals under a 125 plan as part of compensation?

The definition of compensation in the code says Wages as defined in Code Sec. 6051(a)(3) and §6051(a)(8).

6051(a)(3) references the definition of wages for income tax reporting purposes under Code Sec. 3401(a). I scanned this code section and I don't think it includes cafeteria deferrals. This would make sense because there is no income tax withheld on pay deferred under a cafeteria plan.

6051(a)(8) references elective deferrals under §402(g)(3) and §457. §402(g)(3) covers 401(k) deferrals, SAR-SEP deferrals, 403(B) deferrals and SIMPLE deferrals. 402(g)(3) doesn't include cafeteria deferrals. Once again, this makes sense since the purpose of 402(g) is to impose a limit on compensation deferred under various retirement plan vehicles and this limit doesn't apply to cafeteria plans.

Based on this I think the match shoudl be calculated on gross minus cafeteria plan amounts. Most of the time I see it calculated on gross including the cafeteria amounts. Does my reasoning look correct. Thanks for any insights you can provide.

[Gary Lesser]

Compensation does NOT include amounts deferred under a Section 125 plan for SIMPLE purposes.