414s Compensation

[Guest Michele Ciz]

I have a client who allocates an employer contribution based on base pay only, and excludes all bonuses and overtime. They fail the 414 S test, so I can run the 401(a)(4) test, correct?

Am I correct in saying that in order to pass the 1/3 Gateway, I would be using total (415) compensation? If that is the case, what compensation is used for the 401(a)(4) test - the 415 compensation or the plan definiton of compensation?

[Tom Poje]

this all depends.

you indicate you fail the comp test, so you can't use allocation pay in testing.

assuming you use total pay in testing, there is nothing to stop you from testing on an allocation basis (no gateway required) and imputing disparity.

if that passes testing then hurray.

if you test on an accrual basis, then participant must receive either 1/3 of plan year comp (which must satisfy 414s) or 5% based on 415 comp.