Defining Compensation

[Guest Dash02]

Could someone please share with me the things that ought to be considered in choosing between the definitions permitted under the 415 regs?

For administative ease, it seems to me that W-2 comp ought to be used since it is an amount that is already going to be calculated and, therefore, readily available, accurate and understood by the sponsor. Is this correct? Is it fair to say that, as a general matter, W-2 comp is typically used by plans unless there is a particular type of remuneration that you want to treat differently than are treated under the W-2 rules and such treatment is permissible under one of the other permitted definitions (e.g., you want distributions from a non-qualified deferred compensation plan excluded from the definition of 415 Comp)?

Thanks in advance for any help and guidance you can provide.

[britoski]

Be sure to consider imputed income from life insurance and other taxable fringe benefits. These would generally be included in W-2 wages, but not 3401(a) wages. Most employers I am familiar with don't want to include these amounts in plan compensation.

Also, you'll want to be concerned about severance pay. This also will show up on a W-2, but must be excluded from your 415 compensation (and therefore can't be included for purposes of 401(k) deferrals).