Partnership and Definition of Compensation

[sloble@crowleyfleck.com]

This is not my area of expertise, so forgive my ignorance.

This is a partnership with a 401k PS plan with 3% safe harbor contribution and the profit sharing contribution is typically 15% (although its discretionary).

Plan has 2 definitions of compensation: Partners: earned income (no exclusions); Employees: cash compensation (excludes OT and bonuses).

I am told that because the Employee definitions contains pay exclusions, we have to test the definition of compensation under the very convoluted 1.414(s)-(g). (Even as a safe harbor plan, we still have to do this I believe, if I am wrong, let me know and I will thank you profusely.)

I guess I'm hoping there is a cheat sheet or something out there because my head is spinning.

[Tom Poje]

sounds correct. because you fail 414(s) definition of comp, your testing comp must be total, even though most employees received an allocation based on less than that.

and if you have to go to cross testing, then you have the gateway minimum which is 5% of 415 comp (or 1/3 of allocation comp)

[sloble@crowleyfleck.com]

Thanks, Tom. I thought cross-testing only benefits age-weighted benefit allocations?? Here the partners (who get a larger slice of the compensation pie) are not necessarily older--bu they do have more years of service generally. With this information, do you think we can pass under the uniform points allocation safe harbor?

Here is another basic question--do we have to test the safe harbor contributions in addition to the profit sharing contributions?

[Guest clyde14]

i would carefully read the plan document to determine the definition of compensation to use for the Safe Harbor contribution.

[sloble@crowleyfleck.com]

The plan definition of compensation for safe harbor contributions is the same as for profit sharing, as described above.

[jquazza]

Your plan failed the comp test, that's ok, all you do is used a different compensation that satisfies 414(s) (like any 415 def. of comp.) As Tom pointed out, now, you end up with different contribution rates and you have to perform the general test (and maybe Xtest.)

The problem I see is your SHNEC is based on a compensation that is discriminatory and therefore, your plan is not Safe Harbor for that year.