How do you obtain compensation info?

[Lori H]

When obtaining employer census data, do you obtain 2 sets of w-2 comp if it excludes Salary Deferrals from the definition?

Generally in a AA you can select to INCLUDE salary deferrals, which i believe would be Box 3 on a w-2, this comp would be used to determine top heavy, hce, 415, etc, but if the plan has no adjustments to comp, then box 1 of w-2 would be used, yet you would still need box 3 for other plan purposes. This has become an issue of debate in our office.

[WDIK]

Please excuse me if I have not understood the direction of your thoughts, but don't you need the salary deferral information anyway? So there is no need to obtain two sets of compensation.

[BG5150]

I would be careful about just looking at Box 3, or Box 5, or Box 1. Different states have different reporting requirements for the W2's. For example, to get the full, gross-gross comp for NJ residents, we use Box 16 + 12D. For those, there is no other way glean the true gross comp without the ER telling us. Even then, I ask for W2's, because a lot of times, the ER is just using Box 5 (which doesn't include Sec 125 contributions in NJ).

[BG5150]

And I'd ask the ER if excluding 401(k) from comp is really the way they want to go. (I know this doesn't help you for 2009) I think that's a throwback to when deferrals counted towards the 25% ER deduction limit.

[Lori H]

how would a plan benefit from excluding or including deferrals in their def of comp?

[K2retire]

If Joe makes $50,000 a year with no deferrals, his employer contributions are based on $50,000. In a plan that excludes deferrals, if Sue makes the same $50,000 but defers 10%, her employer contributions are based on $45,000. Not a great way to reward someone for planning for retirement, but it can save the employer a few bucks.

PS I don't thik excluding 125 contributions from W-2s is a state law issue. So far as I know that is a Federal rule. There are some other state things that are reported, usually in box 14 or 16 that can impact the total compensation, however.

[Lori H]

If Joe makes $50,000 a year with no deferrals, his employer contributions are based on $50,000. In a plan that excludes deferrals, if Sue makes the same $50,000 but defers 10%, her employer contributions are based on $45,000. Not a great way to reward someone for planning for retirement, but it can save the employer a few bucks.

So that is even a bigger case for ROTH deferrals then. you get a larger employer contribution.

[austin3515]

Beli3eve it or not, Roth deferrals woudl be treated the same way as traditional deferrals fort hat particular purpose. So even if Sue made Roth 401k, you still use 45,000 for comp.

I think the IRS should clarify this eventually, but according to the EOB, this is the most logical conclusion based on the structure of the regs. We looked into this a lot when running ADP testing (i.e., if we were running the test using net comp, were we allowed to reduce comp by Roth 401k as well, and the answer was yes (though more guidance would be appreciated).

[Jim Chad]

Lori:

One other thing about including or excluding deferrals: If the owners are over the $245,000 of comp, there comp is not reduced when you exclude deferrals. This can change the proportions on ADP test and some other things, too.