Testing Compensation

[blue]

Not sure where to find the answer to this question.

Cross Tested Plan

The document (Lenorad Street) states full year compensation is to be used for allocation purposes and has 1/1 and 7/1 entry dates.

Can I use compensation while a participant for testing? Any thoughts would be greatly appreciated.

[J Simmons]

It would appear to be okay if the "selection of this period [is] made on a reasonably consistent basis from plan year to plan year in a manner that does not discriminate in favor of HCEs". Treas Reg sec 1.401a4-12, Plan Year Compensation (4).

[Tom Poje]

you described the definition of comp for allocation purposes. does the document have a separarte definition of 414(s) comp?

[AndyH]

Why would that matter? Any 414(s) comp definition can be used for testing purposes, during one of the intervals desribed under the Plan Year Comp definition under 1.401(a)(4)-12 (including participation), can't it?

(Unless of course the document were more restrictive and defined testing comp for some reason).

p.s. Actually my comments agree with those of J. Simmons and cite a different part of the same cite.

[J Simmons]

Tom no doubt has some additional reasons, but I fathom that his inquiry about a plan definition of testing comp would have two implications, if the plan gives such a definition. One, the plan administrator would be obligated to use a definition of testing comp if set forth in the plan document. Fiduciary obligation to follow plan document. If so, there might also be a reverberation back on the allocations, which might have to be adjusted for testing to pass using the plan-defined "testing comp" rather than just any comp definition or parameters that would be allowable for testing a plan that does not provide a definition for testing comp.

[Tom Poje]

precisely my point. some documents are very specific in regards to testing (I think it might have something to do with 'definitely determinable' fears.) I had one document that was hard wired at 7.5% for interest rate assumption for nondiscrim testing. (It was quite a shock and surprise to me to actually trip across something like that in a document)

I think there is some concern amongst others that your the document is also supposed to specify what your ADP 'assumptions' are (e.g. if you are going to use 'otherwise excludables'). (Due to rumors that certain IRS agents 'require' it????)

so I lean towards the cautionary 'does the document specify something' in regards to whatever testing you may be doing.

[Guest amycavanaugh]

I think there is some concern amongst others that your the document is also supposed to specify what your ADP 'assumptions' are (e.g. if you are going to use 'otherwise excludables'). (Due to rumors that certain IRS agents 'require' it????)

The ADP testing group ie "otherwise excludables" is according to the informal comments of the author of the 401(k) regulations required to be set forth in the plan. I can see why this is required for the gateway and safe harbor group, I did not think this was necessary for the testing group. However it appears that all of the document providers included a question in the EGTRRA document that clarifies this group. However, check with your administration software to see how they parse out otherwise excludables-otherwise you will have an operational defect if you say something different in the document.