In a 401(k) can the definition of compensation be amended to give the participants the option to defer on bonuses?

[Guest sugar daddy]

401(k) has no exclusions on def. of comp. Trustee wants to amend to exclude bonuses then asked if the participants could be given the option to defer on bonuses if they wanted.

My guess is no as it would not be uniform and non-discriminatory

[Tom Poje]

this might depend on your document provider. certainly some documents have a check box for salary and another one for bonuses, so it is possible.

you are also correct, if you go that route, you must perform the 414s comp test to make sure its not discriminatory - if you fail that you have to test on total comp rather than comp less bonus.

and the rule is comp less bonus and then cap at 245,000 if need be, not cap at 245000 and then reduce by bonus.

[Guest sugar daddy]

this might depend on your document provider. certainly some documents have a check box for salary and another one for bonuses, so it is possible.

you are also correct, if you go that route, you must perform the 414s comp test to make sure its not discriminatory - if you fail that you have to test on total comp rather than comp less bonus.

and the rule is comp less bonus and then cap at 245,000 if need be, not cap at 245000 and then reduce by bonus.

thank you kindly.

I guess a non-prototype may give the participant the option to defer on bonuses.

[K2retire]

I guess a non-prototype may give the participant the option to defer on bonuses.

I think you've get it backwards -- the assumption is that everyone defers on all compensation. They can choose to restrict that by not allowing deferrals from bonuses.

[12AX7]

Tom, this is perhaps getting away from the main question, but aren't comp exclusions for 401 (k) contributions not subject to 414(s) testing? I seem to remember reading that in the Regs. I'm nowhere near the regs at the moment so can't give you the cite, or you can correct me if I'm wrong about this.

With regard to the main question, I've seen plan documents that allow participants to exclude bonuses from 401 (k) deferrals. I also think that where the plan allows, a participant can change their deferral election with respect to any payroll that includes a bonus.

[Tom Poje]

well, it would go against what I learned (but I'd be the first to admit I have been taught incorrectly on stuff, and its hard to unlearn things)

Corbel's has an example here

http://www.relius.net/News/TechnicalUpdates.aspx?ID=258

in which base comp was the definition. plan fails 414s test so has to use total comp in tits definition.

(by base comp, com is comp less any bonus or commission)

if I recall correctly, some document checklists even have a note if

exclude bonuses is checked then plan mail fail 414s testing.

I guess looking back at the original post, there are 2 possible questions posed (which I didn't really see)

1. can you exclude bonuses - I'd say yes, but you have possible comp testing issues.

2. can it be an option up to the participant - I think that is a different issues. that would seem to be no different than a participant stopping his deferrals at some point

again, not all documents allow for such options.

[masteff]

As to the question of allowing a separate deferral election on bonuses... Does the plan document need to specify the right to make a separate election for different elements of comp or is this merely an administrative convenience? (Of course I should specify that I would only consider a separate percentage election and not a yes/no election.)

@sugar daddy: Unless they only have a handful of employees or unless the bonus is paid on a separate check, have they confirmed their payroll system can handle this? A separate election on different elements of comp adds a whole layer of complexity to the calc that not all payroll software can manage.

[BG5150]

What's to stop a person from saying: "Just don't take deferrals from my bonus." Could that be interpreted as a (temporary) change in election to 0% and then another election to return to x% or $x, whatever was in place before? As long as everyone is given the opportunity to that.

[Guest sugar daddy]

I can see how it could be non-discriminatory if all participants can choose whether to defer or not on bonuses and I can see how it could be burdensome from an administrative point of view to allow it, but as Tom brought up, the participant is technically stopping their deferral, albeit temporarily, and would therefore not be allowed to defer again until the next entry date.

[K2retire]

I can see how it could be non-discriminatory if all participants can choose whether to defer or not on bonuses and I can see how it could be burdensome from an administrative point of view to allow it, but as Tom brought up, the participant is technically stopping their deferral, albeit temporarily, and would therefore not be allowed to defer again until the next entry date.

I think you mean the next deferral change date -- that is often different than the entry dates.