What compensation is used for General Testing?

[justatester]

I have a plan that excludes stock options from their plan definition of compensation (also their allocation definition). They are nonqualified stok options exercised. They exclude other items as well.

When running the general test, do I use gross compensation (W-2 compensation which includes stock options exercised) or do I used plan compensation? (let's assume plan compensation passes 414s testing.)

[Tom Poje]

testing is permitted using any definition that satisfies 414(s) - 1.401(a)(4)-12 definition - plan year compensation

but of course before you can get to testing you have to pass the gateway if you are cross testing, and that has to be a definition that passes 415 comp (though could be from date of entry)

[justatester]

Not using gateway or ABT to pass general testing.

So as long as my definitions passes 414s testing, I can use that in general?

[austin3515]

Any definition that satisfies the safe harbor can be used:

• Full year pay / Comp as a participant
• Include/Exclude Taxable Fringe Benefits
• Gross of / net of Pre-tax deferrals (including Roth even though it is after-tax)
• Any definition that satisfies the comp ratio test (AND the definition doesn't by design favor HCE's, with some exceptions like excluding over-time/bonus).

https://www.law.cornell.edu/cfr/text/26/1.414(s)-1

BUT check your doc. Most documents allow you to run testing on any 414s definition, but some documents (I think mostly attorney drafted ones, but probably some large bundled providers too) will include a specific definition for testing presumably because they think it is simpler.