Can bonus amounts be excluded from deferral election?

[Guest Dash02]

Not sure why, but client does not want to withhold and contribute 401k dollars out of bonus payments. The bonus dollars paid are not significant in amount.

Does anyone see a problem with the administrative procedures relating to elective deferrals providing that no deferrals will be made from bonus amounts?

Thanks for your help.

[PLAN MAN]

I think you should check the plan document to see if there is any provision for allowing this. Bonuses are considered compensation and if the plan does not specifically address this, I think you must include bonuses in the regular deferral elections.

[Guest LauraVanSteeter]

IF the plan document allows, then the client would might need to pass a 414(s) Compensation test because they are now using an non-safe harbor definition of compensation. (Unless they do the ADP/ACP tests with compensation that includes the bonus amount)

So, not a really simple question. Lots of variables and trickle down effects on this.

[Ron Snyder]

Our plan documents permit separate elections with respect to base compensation, commissions and bonuses. The salary deferral election form, therefore, provides for separate elections with respect to each type of compensation.

[PLAN MAN]

Our plan documents permit separate elections with respect to base compensation, commissions and bonuses. The salary deferral election form, therefore, provides for separate elections with respect to each type of compensation.

That would be at the employee's election, not the employer's decision. If the plan says employees can elect to defer a portion of their compensation, and the plan includes bonuses in the definition of compensation, then the employer should take salary deferrals from the bonuses.

[Guest ENT]

Our plan documents permit separate elections with respect to base compensation, commissions and bonuses. The salary deferral election form, therefore, provides for separate elections with respect to each type of compensation.

That would be at the employee's election, not the employer's decision. If the plan says employees can elect to defer a portion of their compensation, and the plan includes bonuses in the definition of compensation, then the employer should take salary deferrals from the bonuses.

What if the plan does not provide for separate elections for different types of compesnation (base, commissions, bonuses), but instead says that a participant can defer a specified % of compensation? Could we give participants this right in our salary deferral agreement?