plan compensation

[mehmgo]

have a plan where compensation only excludes pre-participation wages from the plan for all sources. if the company has an employee on short term disibilty and the participant gets paid from an outside agency but this compensation is included and added to their w-2 for the year, should the short term disability compensation be included in the plan compensation for calculating employer contributions for the year or should we only include compensation that was actually paid by the company?

[ETA Consulting LLC]

^{If the payment was included on the W-2, then it should be included; as it was (apparently) paid on the Employer's behalf. If I owe you $15 and get sick, and have my insurance company to cut you a check for $15; regardless of who wrote the check, it was me that repaid you that $15. For lack of a better analogy, this appears to be reflective of your situation since the amount was actually included on the participant's W-2.}

^{Good Luck!}

[Kevin C]

The plan's definition of Compensation should tell you if it counts or not. But, keep in mind that a plan can use different definitions of Compensation for different purposes. I've also seen documents that based contributions for disabled participants on imputed compensation. So, what does the plan say?

[BG5150]

Isn't third party sick pay usually excluded?

[Kevin C]

I don't think third-party short term disability payments would normally count as 415©(3) compensation because the regs use the phrase "... for personal services actually rendered in the course of employment with the employer maintaining the plan ..." But, there are special rules in 1.415©-2(g) that apply for someone "permanently and totally disabled", IF the plan provides for it.

However, the only way to tell if it is considered Plan Compensation is to look at the Plan's definition.

[mehmgo]

plan document states a person must be a participant in the plan to receive a contribution for the year - would someone on short term disability being paid by a thrid party be considered not a participant during this time frame?

[Kevin C]

When I started in this business, the standard answer to any plan related question was "What does the plan say?". It applies here. The document is supposed to tell you the requirements for participation, the requirements to receive a contribution and how that contribution is allocated. You may need to look up the plan's definition of some of the terms used, but the answer should be in the document.

If it isn't, the document should also say who is responsible for interpreting the terms of the document. Usually, that is the ERISA Plan Administrator.