Disability and Compensation

[Guest Beavis]

I am hoping that knowledgeable persons could share with me any experience they might have had with IRC section 415©(3)©.

The scenario that I am in, is as follows. The plan in question has a participant that has left employment due to permanent and total disability. The participant has not worked at all during the current plan year. He has no W2 wages at all during this period.

The employer wishes to include this participant in the allocation of the year's employer discretionary contribution. My understanding is that IRC 415©(3)© would allow the employer to impute compensation for this participant at the rate that he would have earned had the disability not occurred. The particpant would then be able to receive an allocation based on that compensation.

The contribution is allocated based on a points formula. The formula gives points for compensation and for years of service.

Here's the rub. What the employer wants to do, is give the participant points for years of service but not for compensation.

My question is...can the plan's definition of compensation for the purposes of allocating the contribution exclude this compensation? This compensation would be taken into account for the purposes of determining the participant's 415 limit.

Any help would be appreciated.