Comp used for safe harbor non-elective contrib

[Guest JL]

I am trying to determine whether a compensation definition excluding cafeteria plan deferrals (which aren't reported on W-2) but including 401(k) deferrals (which are on the W-2) for purposes of allocating the 3% of pay non-elective safe habor contribution would be allowed.

My gut reaction is that I need to either exclude both 401(k) & cafeteria plan deferrals, or include both, but not mix-n-match. Notice 98-52 indicates that comp can be designed to satisfy the 414(s) safe harbor compensation definitions (hence it seems that all deferrals or no deferrals should be excluded). Any thoughts would be greatly appreciated.

[MWeddell]

If you're trying to fit a 414(s) safe harbor definition of compensation, you must use both 125 and 401(k) deferrals (and 457 & 403(B) deferrals if you've got those plans) or use none of them.

However, you could do 414(s) testing perhaps to demonstrate that using on 401(k) deferrals plus W-2 pay is nondiscriminatory. Telling an employer who's trying to avoid 401(k) / 401(m) testing that it now has to do 414(s) testing might not be the easiest thing to do however!

[Guest JL]

Thanks a lot for your thoughts--I had also gotten some other feedback: If the deferrals were made to a standalone deferral program and not part of a Section 125 cafeteria plan (e.g. dependent care flex spending account that can either be a standalone Section 129 plan or part of a Section 125 cafeteria program), then it would be OK to include 401(k) deferrals but exclude Section 129 deferrals. Sigh!