Definition of Compensation

[Guest mparker2028]

Plan's definitionof compensation includes deferred compensation. Client wants to amend to exclude deferred compensation for 2005 Plan Year because a Highly Compensated Employee who retired but comes back to help out has wages and deferred compensation. They don't want to give allocations on deferred compensation.

Can the amendment be signed now to be effective as of 1/1/05 or does it have to be effective 1/1/06?

Thanks for all input.

[Guest gdburns]

I have no answer to your question but I have questions.

Does the Plan allow re-hires to participate?

Is there a waiting period?

Does the Deferred Comp Plan allow re-entry?

What about eligibility requirements?

I wondered if he really should be in the DC Plan in the first place. If he should not then your problem is solved.

Alternatively, should he really be in the 401(k)?

It seems odd that this re-hire is allowed to immediately participate in both plans.

[Tom Poje]

once someone has accrued a benefit you can not take it away. thus, if the requirements to receive an allocation are 1000 hours, then surely by this date someone has accrued. thus to change the definition of comp would be a cutback on someone who has deferred.

If your plan has a last day provision you probably can amend as far as I can tell, but, for example if retirees are eligible regardless of hours or last day then you wouldn't be able to amend.

[JDuns]

To address Gburns's comment about plan entry: Under the new 415 regs if an employee ever had 401(k) deferrals (even if no other vested money), they are deemed to have had vested employer contributions and must enter the 401(k) plan on their date of rehire regardless of their number of breaks in service. (ie, the rule of parity is not available to disregard their prior service).

It is typical that a deferred comp plan applies immediately (since many participants may be drawing compensation deferred from their prior employer and are trying to reduce their immediate tax burden).

I agree with Tom that I can think of a few situations where you might be able to amend now, but it is most likely a protected BRF now that can only be amended prospectively.

[david rigby]

What is meant by "deferred compensation" in this context? Are you saying that the qualified 401(k) plan covers non-qualifed deferred comp?

[JDuns]

If your plan starts with W-2 comp and an executive wants to defer the maximum possible to the 401(k) plan and then defer the remainder of their compensation to the non-qualified plan, the 401(k) plan must carve back in the amounts deferred or else the executive would have zero 401(k) plan compensation (actually, they always need enough comp to cover SS and perhaps state and local taxes).