compensation ratio test failure

[Guest Moira]

I have a plan that excludes bonuses from the compensation definition, and for this plan year fails the compensation ratio test. The plan is meeting the ADP safe harbor with a 3% nonelective contribution. There is also an additional discretionary match. I cannot find anything definitive to tell me what we need to do with this situation, although my assumption is we need to do the 3% nonelective on the basis of total compensation instead of compensation less bonuses. Correct? Thank you.

[BG5150]

I have a plan that excludes bonuses from the compensation definition, and for this plan year fails the compensation ratio test. The plan is meeting the ADP safe harbor with a 3% nonelective contribution. There is also an additional discretionary match. I cannot find anything definitive to tell me what we need to do with this situation, although my assumption is we need to do the 3% nonelective on the basis of total compensation instead of compensation less bonuses. Correct? Thank you.

I agree. And the plan should be amended for the year (at least) to not exclude the compensation so there is not an operational failure.

[JanetM]

If the only ones who get bonus are HCE, you can do just what you do now and exclude the bonus from comp.

[rcline46]

Check you plan document to see if there is a 414(s) definition of compensation. If so you can always rely on that to do your testing. So if you use a SH definition under 414(s), you are golden!

[Guest Moira]

If the only ones who get bonus are HCE, you can do just what you do now and exclude the bonus from comp.

The big problem is there are 2 HCEs and only one of them even gets a bonus. 4 NHCEs all have bonus compensation, one of which received almost 15% of his annual compensation in bonus. Miserable failure.

Thank you for your thoughts!