Postponing an employee's compenstion

[Guest lawman98]

I have an employer who is SH for 2009, but not for 2010. They have one employee is slightly over the HCE limit of $110,000. Can they (with the employee's consent) postpone enough $ from his last payroll to keep him under the limit since the 2009 data will be used for testing in the 2010 plan year? I can't find anything that supports doing this.

[Ron Snyder]

Compensation that is deferred to a later year must be paid in compliance with 401(k), 409A or 125. Read the plan to determine whether or not: (1) it is too late for an employee to elect to defer into the 401(k) plan; (2) such deferral amount will be excluded from compensation for testing purposes>

Or are you asking, "can an employer unilaterally decide not to pay compensation to which an employee is legally entitled"? If this is what you are researching, there are a number of court cases dealing with this issue. The employer loses.

The corollary question is "if an employer fails to pay compensation due when it is due, but pays it later, does it count as compensation when it is paid or when it should have been paid?" Good luck on that one.

[Bird]

If the employment arrangement is informal, without a contract, and both sides agree that the employee's pay for a period is x-y, and for the next period is x+y, I don't think it's a problem. If it is more formal, with contractual rights to x per pay period, I suppose it is more problematic, as per vebaguru's post.

[jpod]

lawman98: Step 1: How does plan define compensation for purposes of SH contributions? Step 2: How does 414(q) define "compensation" for HCE purposes? Step 3: Consider the doctrine of "constructive receipt" and determine whether whatever it is that employer is attempting to do would work to shift "compensation" from 2009 to 2010. I kinda doubt it.

[GBurns]

Even in an "informal" arrangement, usual and customary will come into play along with precedent. Variable pay arrangements have to be pre-arranged.