Bonuses counted in a 401(k) safe harbor plan

[eilano]

Must an employer take salary deferrals from a bonus check in a 401(k)safe harbor plan and also can bonuses be excluded when calculating the 4% on the safe harbor match? I believe it depends on the definition of compensation in the plan document but what if the definition of compensation is silent on bonuses.

[LCARUSI]

What is the definition of compensation? I find it hard to believe it could be silent on bonuses

[david rigby]

I find it easy to believe that it is silent on bonuses. But LCARUSI is right: what is the definition of comp in the plan? Many plans do not mention bonuses because the definition of comp is "all comp". In this case, a bonus would be handled the same as other pay.

[pjkoehler]

Ideally your plan document contains an unambiguous definition of compensation that will determine whether or not bonuses are included for elective deferral purposes. Even if it is unambiguous, i.e. it clearly says that bonuses are included or excluded from the definition, it's helpful to ascertain that it is also consistent with the terms of the salary reduction agreement and the summary plan description.

If the plan's definition is ambiguous, then the fiduciary with responsibility for interpreting the terms of the plan ("plan administrator" or "administrative committee") should exercise its authority to interpret the definition. In making its interpretation of the ambiguous plan term, the fiduciary should not only take into account the terms of the salary reduction agreement and summary plan description, but it should also be guided by the employer's past pattern or practice in operation.

Keep in mind that a definition of compensation that excludes bonuses is not a "safe harbor" definition of compensation for nondiscrimination purposes. Such a definition will subject the plan to general testing regarding the nondiscriminatory compensation requirement under Code Sec. 414(s). Reg. Sec. 1.414(s)-1(d).

[This message has been edited by PJK (edited 06-26-2000).]

[Alf]

Aren't safe harbor plans required to use a 415©(3) safe harbor compensation definition? If PJK is correct about a bonus exclusion taking the definition of compensation out of the safe harbor, then I don't think a safe harbor plan could exclude bonuses.