Compensation definition and different matching rates

[Guest dob]

I have a 401(k) plan which uses a nonsafe harbor definition of compensation for matching purposes. (Bonuses, overtime and a couple of other things are excluded, and the compensation percentages for the HCEs and nonHCEs do not satisy 1.414(s)-1(d).) The plan satisfies the 401(m) ACP test using a safe harbor compensation definition. My question relates to the rate of matching contributions and the benefits, rights and features nondiscrimination test. If I use a safe harbor definition of compensation, certain nonHCEs cannot receive the same rate of matching contributions as the HCEs. Does the definition of compensation, which on its face applies to everyone but impacts upon HCEs and nonHCEs differently, result in different rates of matching contributions under 1.401(a)(4)-4(e)(3)(iii)(G) and 1.401(m)-1(a)(2)? (I always thought that the compensation definition was irrelevant as long as the plan satisfied 401(m) using a nondiscriminatory definition of compenation.)

[RTK]

Take a look at the how the rate of allocation is explained in the a-4 regulations. The regulations state that different rates exist if based on different definitions of compensation (or other requirements) that are not substantially the same. Since you use the same definition of compensation, arguably, you don't have different rates. Note that the regulation does not say that the definition of compensation must satisfy 414(s).

[Blinky the 3-eyed Fish]

Dob, I have only heard of a discriminatory rate of match issue arising when there are excess contributions and a "hanging" matching contribution or if different divisions received different rates of match. I have not heard of a discriminatory rate of match issue arising simply because the plan uses a compensation definition that does not pass the compensation ratio test.