Compensation for 401(k) plan where client also maintains a 457 plan

[Lame Duck]

i have a client with both a 401(k) plan and a 457 plan. The contributions to the 457 plan are only employer contributions that are reported on the participant's W-2. The 401(k) plan defines compensation as wages, tips and other income reported on the W-2 (W-2 compensation). It is my contention that the employer contributions to the 457 plan should be included as compensation when determining contributions under the 401(k) plan. The client does not think it is should be included. Who is right?

[ETA Consulting LLC]

Your client is correct. The employer contributions to a 457 are treated as employee salary for FICA, but not included in 415 Comp.

Good Luck!

[Carol V. Calhoun]

The client is right. The 457(b) deferrals are reported on the W-2, but they are not "wages, tips and other income," because they are excluded from income by 457(b).

[QDROphile]

It depends on what the 401(k) plan says. The deferrals under the 457(b) plan can be included in compensation for purposes of the 401(k) plan. Treas. Reg. 1.414(s)-1©(4). Without an express terms for inclusion, the definition of compensation in the 401(k) plan probably excludes the 457(b) amounts,

[Lame Duck]

The 401(k) basic plan document definition of compensation includes deferrals under 457. The question we are wrestling with is what constitutes a "deferral" within the meaning of 457(b)..

[QDROphile]

I think everything under 457(b) (elective or nonelective) is a deferral for purposes of the regulation. What was intended by the 401(k) plan language is up to the plan administrator (or whoever has interpretive authority) to decide. The participants under the 401(k) plan are big dogs unless the employer is governmental (and the 401(k) plan is grandfathered). I would be surprised that the 401(k) plan is intended to cut back on the big dogs. But then, I am a cynic.