compensation and gateway

[Chippy]

The plan compensation definition excludes section 125 contributions to a cafeteria plan. It fails 414s testing. It is my understanding that I can allocate the profit sharing contribution on the compensation excluding the section 125 contributions, but I have to test on 415 comp. Is that correct?

when using the 415 comp, the gateway test fails. Do I just give an additional contribution to the participants that are failing based on their 415 comp? About half of the employees received less than 5% of their 415 comp.

thanks for you help.

[John Feldt ERPA CPC QPA]

Exclduing pre-tax deferrals is a safe harbor 414(s) definition that would not require the compensation definition to be tested - is that the plan's definition?

Anyway, if it truly fails, you ALWAYS allocate according to the terms of the plan document.

If the definition of compensation does not satisfy 414(s), that means that you still allocate using that definition of compensation, but then you now must test those allocations using any definition of compensation that DOES satisfy 414(s). Or, if you have a very inflexible plan document, you must test using the required testing compensation required by the plan document (payroll provider document or large MEP documents tend to have this). The testing of those contribution caould be done on a contributions basis of a benefits basis, or depending on the situation, some of each perhaps.

If you still can't pass, then probably a -11(g) amendment might work to change the definition retroactively to the beginning of the prior year, as long as no one's benefits are reduced.

[John Feldt ERPA CPC QPA]

As for the 5% gateway. Since the terms of the plan require the 5% without certain plan compensation exclusions, then you must allocate as such.

[Chippy]

The plan excludes contributions to a cafeteria plan but includes the 401(k) deferrals. Would that have to be tested under 414s? We have always tested it and used 415 comp for testing. This year the testing just isn't working out and I'm struggling as to how to make it work.

[Tom Poje]

yes, the rule for the safe harbor def of compensation is exclude all deferrals, not just some. otherwise you run the comp test

and by the way, that includes Roth, though Roth are not pre tax.

As I recall this was discussed at an ASPPA Conference a few years ago.

[MWeddell]

Roth contributions are after-tax, so they already are excluded from various safe harbor definitions of compensation.