Option to *not* defer on bonus comp?

[Guest Jay345]

Hello everyone,

I have read through similar topics, but have not found one that matches this case specifically.

In my particular case, the document clearly includes bonuses in the definition of Compensation. The plan sponsor is not trying to amend to exclude bonsuses.

Rather, they are giving employees a form that gives them the option to "Take 401(k) deductions from my standard earnings only," OR "Take 401(k) deductions from all earnings including any commission and / or bonus received."

My take is that if a participant *does* chose the first option, this would be akin to him or her saying, "reduce my deferral percentage to zero on the bonus check," if the bonus is paid separately, or "for this check, reduce my deferal percentage to the equivalent rate that it would need to be in order to effectively exclude deferral on my bonus."

This seems fair to me, and would not require a 414(s) test.

Agree? Disagree? I've never seen this type of form before and can't find anything similar in my research.

Thanks!

[david rigby]

Safe Harbor plan?

[Guest Jay345]

Safe Harbor plan?

It is not a safe harbor plan, but I see why you are asking... Thoughts?

[ETA Consulting LLC]

I agree with you. All you're doing is: Operationally, allowing each participant to make a separate election for the bonus payroll. Bonuses are still included in eligible compensation. You're simply going further to allow an individual to make a separate, and distinct, election on that one-time payroll (which is typically subject to a higher withholding).

It doesn't affect the overall definition of Compensation to remove it from 'safe harbor' under 414(s).

Good Luck!

[BG5150]

I see no problem with that, unless the plan document says that a separate election for bonus is not allowed.

Some prototype adoption agreements have that question.

I guess you could always amend it out, though.

[Guest Jay345]

Thanks for the confirmation everyone. Much appreciated.