401(k) contributions and bonus compensation

[Guest Mr. Relaxation]

Having trouble using the search feature, so I unfortunately have to post this, although I'm sure it's ben previously addressed. Can Mrs. Owner defer $0 all year long, and then defer full $12,000 out of her year end bonus (which figures to be over 6 figures)? She will give a safe harbor contribution (3%) so 401k testing is N/A. Assuming everyone gets this option, is this on the up and up? I think you can see where this is coming from. Owner wants a 401k but has no intention of contributing any of her own money to it, and will use the "bonus comp" deferral as an indirect way to get more money for her into the plan, technically as a 401k contribution, but practically speaking its not really that.

One other question: Can the safe harbor (3%) contribution be via integration, as long as everyones allocation from it is at least 3% of pay and fully vested?

Thanks for any input and advice.

[ccassetty]

Yes, she can defer from her bonus. It's my understanding that if the bonus is paid after the end of the year, only the amount of the deferral can be counted as compensation for the year for which the deferral is made. The rest of the bonus will be counted as compensation for the year in which the bonus is paid. This may or may not be a problem depending on the situation. Please somebody correct me if I'm wrong.

I would want to make sure that the other employees are given the opportunity to change their elections for their bonuses not just to have their same election apply to the bonus. There is a difference.

If the bonus is paid after the end of the year, the plan document must have this provision.

No, you may not integrate the 3% safe harbor contribution. You can put in an additional PS contribution that may be integrated, but the 3% safe harbor cannot be used in the calculation.

[david rigby]

The plan definition of compensation should include bonuses.