Testing compensation

[jaemmons]

Plan document refers to the definition of compensation for plan purposes as that which is used for adp/acp testing. This definition is a non-safe harbor 414(s) definition. Absent specific plan language, could the plan administrator use

415©(3) compensation instead of the non-safe harbor 414(s) comp for adp/acp testing purposes or would the plan document need to be amended?

FYI - plan uses current methodology & passes 414(s) comp testing. Adp/Acp Fail with non-safe harbor definition but passes with 415©(3).

[rcline46]

Look for definition of 414 compensation in document - might get you out.

[Guest Midas]

jaemmons - We encouraged our clients that have a non-safe harbor definition of compensation in their document to supply 415©(3) for adp/acp testing. The opinion was, that if you passed adp/acp using a 415©(3), you in essence have passed a compensation test for the deferral and match source. You do not need an amendment to use the compensation during testing.

[jaemmons]

rcline,

Thank you for the suggestion. The plan does not have a 414(s) comp definition, but states that adr's are computed using the plan's definition of compensation (which is a non-safe harbor 414(s) definition).

Midas,

Thank you for your comments. I have always used the "rule of thumb" that you could use a safe harbor defintion of 414(s) comp (e.g. - 415©(3)) comp for all discrim testing (regardless of the plan's definition of compensation) but to use an alternative defintion would require the plan document to allow for the non-safe harbor exclusions.

[Blinky the 3-eyed Fish]

Plan document refers to the definition of compensation for plan purposes as that which is used for adp/acp testing.

This statement makes it sound as if the definition of compensation in the plan is whatever definition is used for ADP/ACP testing. However, your other comments make it sound like the ADP/ACP testing uses the plan definition of compensation. I think you mean the latter, so I will go with that.

Since you say the plan passes the compensation ratio test, your definition of compensation obviously satisfies a definition of 414(s) compensation. If your plan document is defining the specific compensation to use for the ADP/ACP tests, I don't see how you can ignore that without violating its terms. So yes, I think you do need an amendment and a call to see why such a crappy restrictive provision was put in the document in the first place.