ADP and Residual Compensation

[Stevo-PDX]

A participant retired12/31/2013 and was paid 1/2/2014. The participant deferred, matched and received PS on the compensation paid 1/2/2014. The plan uses the standard 415 compensation definition allowing for post-severance compensation paid up to 2 1/2 months after separation from service or the end of the plan year. An argument could be made that they should be included in ADP & ACP testing because their compensation was includible under 415. An argument could be made that they should be excluded from the test based upon them not being an employee in 2014. Would anyone be willing to comment on whether they be included or excluded from the 2014 ADP & ACP testing? They are an HCE and I'm looking for a valid reason to exclude them.

[Lou S.]

Was it previously included on the 2013 test?

How have other similar participants HCE/NHCE been treated in the past?

I think it could fall under 2013 or 2014; if you have a consistent method that is always followed that complies with 415 than you should be fine. Provided it also follow the plan document.

[Tom Poje]

well, if the document has something like the following:

15. Post Year End Compensation
[ ] Determine Compensation using Post Year End Compensation
NOTE: If selected, amounts earned during the current year and paid during the first few weeks of the next year will be included in current year Compensation

..................

and the box is checked I would follow the terms of the document and include in 2013.

if unchecked I would follow the terms of the document and include in 2014

.....................

now finding it in the document might be another story....

[Tom Poje]

if the document hasn't been restated it might be in the 415 amendment that was required

here is a sample

[ ] (I) Compensation Earned in Limitation Year but Paid in Next Limitation Year. If this paragraph (I) is checked, then effective as of the first day of the first Limitation Year beginning on or after July 1, 2007, Code §415©(3) Compensation for any Limitation Year will include any amounts earned during that Limitation Year but not paid during that Limitation Year solely because of the timing of pay periods and pay dates if: (i) these amounts are paid during the first few weeks of the next Limitation Year; (ii) the amounts are included on a uniform and consistent basis with respect to all similarly situated Employees; and (iii) no Code §415©(3) Compensation is included in more than one Limitation Year.

[TPApril]

Possibly related - 401(k) plan's 415 amendment included only post severance pay that was 'regular compensation'. In practice, final paycheck includes unpaid PTO. 401(k) is taken from that full amount and match based on that full amount. Does this require a VCP to correct that 415 amendment and subsequent plan document restatement to include this PTO in the plan's definition of compensation?