definition of compensation

[mariemonroe]

Safe Harbor 401(k) Plan defines "Compensation" to be W-2 wages and to include salary and bonus deferrals made by employees pursuant to employer's nonqualified deferred comp plan.

Plan defines "Code Section 415 Compensation" using a safe harbor definition which excludes employees' salary and bonus deferrals in the nonqualified plan.

Plan uses "Compensation" definition for purposes of computing matching contributions.

Therefore if employee A makes $100,000 salary, defers $10,000 of it into the nonqualified plan, his entire $100,000 salary is used for purposes of computing his match. However, his salary for 415 purposes is $90,000.

Is this improper?

Is it improper to include salary/bonus deferrals in a nonqualified plan as part of "Compensation"?

[Kevin C]

Safe harbor matching contributions must be allocated using a compensation definition that satisfies section 414(s). The plan compensation definition you are describing would not be a 414(s) safe harbor definition, so you would have to test it. Your plan compensation definition includes additional items only for those HCE's participating in the non-qualified plan, so I don't see how you could satisfy 414(s). But, I would run the test anyway, just to see what the results look like.