414(s) Comp and ACP Testing

[12AX7]

Plan compensation definition excludes bonuses, overtime and commissions (does not meet compensation ratio test). When testing ACP with any other 414(s) definition, the test fails. Since this is considered the general test for matching contributions, would the following be true:

1. Plan Compensation would need to be amended to a definition that meets 414(s) - for example, the definition is amended to include bonuses and the comp now meets 414(s). Additional contributions would need to be made to participants.

2. I need to re-test ACP, now to include the additional contributions.

I know this issue has been covered with respect to testing comp, but I could not find any discussion with respect to a failed ACP test under these circumstances.

Thanks!

[12AX7]

Sorry to bump this up again. I'm hoping someone could offer some thoughts on this matter. Thanks.

[Jim Chad]

Let's see if I can start a discussion.

I think your plan of steps 1 and 2 would work. But I don't think that is your only choice.

If you use a 414 def of comp when doing the ACP test, and the test fails, you could simply make refunds to correct according to the current rules.

Does anyone see anything I am missing?

[Guest Sieve]

It's not clear to me that you must defer from compensation that meets Section 414(s), or that matches must be based on a 414(s) definition. I think the plan can permit deferrals from, and matches based on, any definition of compensation, but, of course ADP/ACP testing must use a 414(s) definition.

So, I don't think your Step #1 is required, or even permissible, with respect to making additional contributions--i.e., the Plan permitted deferrals & matches based on a specific definition of compensation, and you're stuck with that. You either pass the test using some 414(s) definition, or, as Jim suggests, correct the failed ACP, but I don't think you can change the rules of the deferral/match at this time.