Compensation definition for safe harbor match only

[Belgarath]

Here's a new one, to me anyway.

Plan has basic safe harbor match. For purposes of DEFERRALS, the participant may make a separate election to defer up to 100% of any bonus. However, for purposes of the MATCH, bonuses are excluded.

Aside from the issue that this doesn't necessarily make sense to me, I'm wrestling with the question of whether this automatically violates the safe harbor provisions.I believe that if a compensation definition satisfies 414(s) it is permitted under 1.401(k)-3(b)(2). Since excluding bonuses is not a "safe harbor" but IS a "reasonable" definition for 414(s) compensation ratio testing, it seems like as long as the compensation ratio testing is passed, that this definition would be permissible.

However, I'm wondering if the fact that this definition applies only to the match, and not to the deferrals, changes that answer, if indeed it is correct in the first place?

Any thoughts on this would be appreciated!

[Tom Poje]

well, I certainly don't think the 'intent' of safe harbor plans would be to have this situation arise.

Arguably, such a situation could lend itself to the possibility an HCE would receive a match at a higher rate than an NHCE, which of course is forbidden.

For sure it would happen if you based the rate of the definition of comp on which one could defer.

oh crap. I just realized. this is post number 5330 for me. does that mean I have to fill out a form?

Hopefully at least a few of my posts have been informative.

[GMK]

All your posts are informative, but watch that language, young man. Remember, most non-discriminating readers prefer the less offensive expletive "oh carp." (Yes, we realize that may have been a typo in your post.)

Also you can complete and file your form at pilgrimsantagrinch.com at any time. You will, however, need to update the 27-character password at least every 950 seconds for access to the site. For your convenience, instructions on the types and order of characters required in a password have been sent to you by telex, and have a great Labor Day weekend.

[Archimage]

Belgarath, I agree. Assuming it does pass 414 test, the safe harbor match is fine.

[ESOP Guy]

oh crap. I just realized. this is post number 5330 for me. does that mean I have to fill out a form?

Hopefully at least a few of my posts have been informative.

Yes! You owe a 15% excise tax on the value of the advise given during the record period. However, if you can show that the advice qualifies for one of the 15 narrowly defined class exemptions you may not owe any excise tax.

However, you can only know if you qualify for one of the exemptions by first filing for an advice Determination letter with the IRS. They will get back to you as soon as they issue the needed guidance on what "de minimis" means in regards to a 414(s) test. Until then as long as you make good faith attempts to comply to with the comment rules you have will have a chance to amend any previous advice given.

Hope that helped.

[Belgarath]

But Tom, since free advice is worth what you pay for it, then the excise tax is 15% of nothing. Unless, of course, you have "imputed" or "phantom" value.