414(s) Testing

[justatester]

We are running a 414s test. The client excludes certain items from their definition of compensation for allocation purposes. Is it possible for the "allocation" compensation to be greater than "gross" compensation.

In one case, the participant is an Ex-PAT so their gross compensation is 0, but they still have allocation compensation and receive an allocation.

In another case, the NQ plan contributions are impacting the definition.

Any thoughts?

[Kevin C]

A few thoughts:

1. You are not required to use a compensation definition for allocations that complies with 414(s), see 1.414(s)-1(a)(2).

2. Unless the definition used for the allocation is addressed in 1.414(s)-1(e) or (f), I don't see how it will satisfy the reasonable definition requirement of 1.414(s)-1(d). It shouldn't be a big issue if the allocation comp definition doesn't satisfy 414(s) provided you can find a 414(s) compliant definition that can be used to show you pass testing. Hopefully, your plan document allows flexibility in the compensation definition used for testing.

3. If a participant has gross compensation of zero, you are likely to have 415 issues with trying to allocate contributions to him because I would expect his 415 compensation to be zero.

It sounds like an interesting situation. Good luck.