Parsonage Allowance

[Guest Form5500]

I have a client who had a 401(a) plan with a 6% employer contribution (it's not a match). They have been including the parsonage allowance as part of employee's compensation - meaning this parsonage allowance

Does anyone know if a parsonage allowance is included in an employee’s compensation? I have a client who has a 401(a) plan with a 6% employer contribution (it's not a match) and they have been including the parsonage allowance in the employee's compensation and the employee has being receiving a 6% match on this. Is this allowed? Also, if you could point me into the right direction of the IRS regs that would be great.

[Kevin C]

The housing allowance does not count as Section 415© compensation. See 1.415©-2(b) and note the phrase "to the extent that the amounts are includible in gross income ...".

But, you are not required to use 415© compensation to allocate contributions. The compensation definition used to allocate contributions does not even have to satisfy 414(s). Discrimination testing must be performed using a compensation definition that satisfies 414(s). See 1.414(s)-1(a)(2). Section 415© compensation is a 414(s) safe harbor compensation definition, but there are other ways to satisfy 414(s).

What definition of compensation does the plan use for determining contributions?