Beemer Posted January 9, 2007 Posted January 9, 2007 A 401(k) plan limits elective deferrals to 15% of compensation. Compensation does not include commissions. After the end of the year, due to the fact that the non-highly compensated employees were payed large commissions, the amount of compensation for the HCE's that can be considered to get a passing eligible compensation ratio is lowered, which increases the deferral percentage. The NHCE's are deferring at a good rate so there is no real inpact on the ADP test. However, the percentage for the HCE's is now over 15%. Can this be corrected with a distribution?
WDIK Posted January 9, 2007 Posted January 9, 2007 I may not be seeing the whole picture, but isn't the issue that the definition of compensation may be discriminatory? ...but then again, What Do I Know?
Beemer Posted January 9, 2007 Author Posted January 9, 2007 I may not be seeing the whole picture, but isn't the issue that the definition of compensation may be discriminatory? That's why they are only using as much of HCE's compensation that will have same compensation ratio for the NHCE's.
WDIK Posted January 9, 2007 Posted January 9, 2007 Does the document allow the change in the HCE's definition of compensation? ...but then again, What Do I Know?
Beemer Posted January 9, 2007 Author Posted January 9, 2007 How much the HCE's get in regular pay, bonuses, and commissions is determined at the end of the year.
WDIK Posted January 9, 2007 Posted January 9, 2007 Then what is the basis for the deferrals made during the year? ...but then again, What Do I Know?
Beemer Posted January 9, 2007 Author Posted January 9, 2007 The deferrals are based on regular compensation, but it appears that the compensation is adjusted at the end of the year.
WDIK Posted January 9, 2007 Posted January 9, 2007 Adjusted as in reclassifying an "includable" form of compensation as a "nonincludable" form? ...but then again, What Do I Know?
Beemer Posted January 10, 2007 Author Posted January 10, 2007 Yes, but only for the HCE's. This does not take anything away from the NHCE's and only limits the compensation for the HCE's. The HCE's decide what their pay should be before the end of the year, to avoid a discriminitory definition of compensation.
Guest Pensions in Paradise Posted January 10, 2007 Posted January 10, 2007 I hope the IRS isn't reading this.......
WDIK Posted January 10, 2007 Posted January 10, 2007 I will now retreat to the safe position of recommending that you seek competent legal counsel. ...but then again, What Do I Know?
Guest Pensions in Paradise Posted January 10, 2007 Posted January 10, 2007 I'll be a little more blunt than WDIK. What you are doing is wrong. The HCE's cannot arbitrarily "reclassify" their compensation to make it excludable. Run, do not walk, to an ERISA attorney.
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