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415 limits/housing allowances

Guest ksumner

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Guest ksumner

Let me first say that this is not a church plan. However, we are finding that the rules that apply to clergy are a bit different than the norm and it seems that this is the best place to pose a question.

We have an MPP and a 401(k) plan for a client. Most of the participants are clergy (there are also some secretaries). The participants are deferring and receiving MPP contributions based on their W-2 comp plus their housing allowance. It is the only pay that they are providing us (the TPA). When we told them they were failing ADP, they insisted that the housing allowance is not includible for testing. (Please note that one participant had W-2 comp of $45,000 and a housing allowance of $36,000, making the total compensation $81,000.)

Revenue Ruling 73-258 seems to back this up. However, it is very old and pre-dates 415.

Here are my questions: 1)Can the clergy defer and receive benefits on the housing allowance portion of their compensation? 2) Do we include the housing allowance in ADP testing? 3) Do we include the housing allowance in 415 and 404 testing?

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Guest Danny Miller

It is my view that clergy housing allowance cannot be counted as compensation for purposes of section 415 testing. I understand that the IRS is going to issue a ruling in the near future to that effect. (There is an argument that can be made as to why it can be counted, but the IRS National Office has informally told me that they do not agree with the argument, and the soon to be issued ruling may adress the alternative argument.)

Housing allowance can be counted as compensation for purposes of the plan's definition of compensation, however. As to the section 404 and ADP issues, I took a quick glance at the 414(s) regs, and it appears that you wouldn't include housing allowance for 401(k) and 404 testing, given the use of 415 compensation as a benchmark in the regs. However, I haven't looked at the 414(s) regs carefully in that regard, but will do so later and post a follow-up message. Hope this helps. Give me a call if you need follow-up discussion.


Danny Miller

Conner & Winters

1050 17th St., N.W.

Suite 810

Washington, D.C. 20036

(202) 783-5711


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