Restricted Stock

[fiona1]

401(k) plan is defined to use section 3401(a) wages as their definition of compensation.

The employer awards 500 shares of restricted (a.k.a. contingent) stock to an employee after 1 year of service. The stock is subject to a 5 year vesting schedule. It has no value until it is vested.

The value of the stock is reported on the W2 in the year it is awarded (1 year of service). The employee can pay taxes on it the year it's awarded (taxed as ordinary income), or they can file a section 83(b) form and pay taxes in the year it is vested.

The stock is not part of stock option program. It is not publicly traded, not registered with the SEC, is not subject to payroll tax, is not used in the determination of 401(k) benefits, cannot be used for collateral, and cannot be sold other than when the employee terminates.

So, should the value of the stock be included in the plan's definition of 3401(a) compensation - and be included in 415 compensation for purposes of the IRC §415 limit and determination of HCE status?

Any thoughts?