414(s) failure

[Guest CHRISTA]

I have a plan that wants to exclude commissions and bonuses from the definition of compensation. There is a possibility that they will fail the compensation ratio test at the end of the year. What are the consequences if this test does fail? Is the employer responsible for contributing all deferrals and match that would have been based on commissions and bonuses?

[AndyH]

I think you're ok if you pass the ADP and ACP test on gross wages.

[Guest Tom Geer]

Or any other permitted definition under 414(s). If the test fails on any permitted compensation defeinition, then you correct by "refund", reclassification, QNEC or QMAC. If not, the plan is disqualified, which you really want to avoid.

[Guest JimD]

I would be concerned about a rate of match that is higher for the HCE's than the NHCE's.

[John A]

I'm confused. I thought that, in this situation, the requirement of 1.414(s)-1 (d)(3)(i) would have to be satisfied by making adjustments to the compensation used. Even if the ADP/ACP tests pass using a definition that satisfies 414(s), the 1.414(s)-1(d)(3)(i) test could still fail if you used the failed definition to determine the match in the first place. I don't think you can move on to benefits amount testing using a definition of compensation that satisfies 414(s) if you used a definition of compensation that failed 414(s) to determine the amount. What am I missing?

I was missing 1.414(s)-1(a)(2):

... even though a definition of compensation permitted under section 414(s) must be used in determining whether the contributions or benefits under a pension, profit-sharing, or stock bonus plan satisfy a certain applicable provision (such as section 401(a)(4)), except as otherwise specified, the plan is not required to use a definition of compensation that satisfies section 414(s) in calculating the amount of contributions or benefits actually provided under the plan.