414(s) compensation

[R. Butler]

It is my understanding that 414(s) compensation would include auto expense reimbursements and cobra reimbursements which are includable as income on the W-2? Am I correct on that.

Having a little discussion with a plan sponsor; I guess their prior providers told them that such expenses did not count as compensation even though reported on the W-2.

Thanks in advance for any guidance.

[fiona1]

I assume you mean 415©(3) compensation - and as to whether those items are included in 415©(3) compensation may depend on the definition outlined in the plan document, which could be one of 4 different definitions. There is the 415 defintion, and then the 3 safe harbor defitiions (415 Simplified, W2, and 3401(a)). If they use the Simplified 415 definition, for example, then whether or not a component of pay is reported on the W2 doesn't really apply in terms of whether it's plan compensation or not.

414(s) compensation is another animal. Any of the four 415©(3) defintions will satisfy 414(s). But then there are other methods of complying with 414(s). There are certain safe harbor exclusions, the inclusion of elective contributions, exclusions applicable only to highly compensated employees, and alternative methods that require additional testing.

I assume you're trying to determine the compensation to use for nondiscrimination testing, since you bring up 414(s). I would first determine if the plan document outlines what kind of compensation to use. Does it use one of the 415©(3) defintiions? If so, which of the 4 definitions? Does it provide for the exclusion of any of the items listed in §1.414(s)-1©(3)?

1.414(s)-1©(2)Compensation within the meaning of section 415©(3).—

A definition of compensation that includes all compensation within the meaning of section 415©(3) and excludes all other compensation satisfies section 414(s). Sections 1.415©-2(b) and © provide rules for determining items of compensation included in and excluded from compensation within the meaning of section 415©(3). In addition, section 414(s) is satisfied by the safe harbor definitions provided in §1.415©-2(d)(2), (d)(3) and (d)(4) and any additional definitions of compensation prescribed by the Commissioner under the authority provided in §1.415©-2(d)(1) that are treated as satisfying section415©(3).

(3)Safe harbor alternative definition.—

Under the safe harbor alternative definition in this paragraph ©(3), compensation is compensation as defined in paragraph ©(2) of this section, reduced by all of the following items (even if includible in gross income): reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation, and welfare benefits.

[R. Butler]

Thank you for your response.

I used 414(s) because the document provides that regardless of the definition of compensation for allocations I can use any definition meeting 414(s) for ADP/ACP purposes. (As a caveat I don't see that it matters in this situation. For allocation purposes the plan uses 415 safe harbor & the same question arises in regards to the auto reimbursement & COBRA are inlcuded).

Under 414(s) & the 415 safe harbor definitions it is my understanding that the auto expenses are included as compensation if they part of a nonaccountable plan. (The easiest way to detemrine whether the auto expense plan is accountable or nonacocuntable is whether it is comp. on the W-2. Reimbursements under an acocuntable plan shiuldn;t be on the W-2.)

I'm a little less sure on the COBRA. My initial thinking is that it is a fringe & is inlcuded if included in income.

Thanks for any guidance.