Compensation for SHNE 401(k) plan

[Craig Garner]

I understand that the definition of compensation for the SHNE contribution must be a 414(s) safe harbor definition or another definition that can pass 414(s) using the compensation ratio test.

However, what about the definition of comp for the salary deferrals? Can that definition be different than the definition for the SHNE?

For example, could a plan exclude bonuses for deferral purposes (for administrative convenience), but include bonuses for the SHNE (to insure a 414(s) safe harbor definition)? Let's also assume that excluding bonuses from comp would NOT pass the ratio test of 414(s). So, my deferrals are using a "reasonable" definition under 414(s), whereas the SHNE is using a 414(s) safe harbor.

[Tom Poje]

well,

1.414(s)-1(d)(2) defines 'reasonable' definition

but 1.414(s)-1(d)(3) requires such definition to pass the comp test. the two go hand in hand.

but your question says deferrals are using a reasonable definition, but won't pass the ratio test (I assume you mean comp test)

that sounds inconsistent.

[Craig Garner]

Tom, thank you for your response. At first, I thought as you do. In doing my research, here is why I am a bit confused.

1.401(k)-3( c)(6):

(iv) Restriction on types of compensation that mat be deferred- A plan may limit the types of compensation that may be deferred by an eligible employee under a plan provided that each eligible NHCE is permitted to make elective contributions under a definition of compensation that would be a reasonable definition of compensation within the meaning of 1.414(s)-1(d)(2). Thus, the definition of compensation from which elective contributions may be made is not required to satisfy the nondiscrimination requirement of 1.414(s)-1(d)(3).

[Tom Poje]

that does appear to override 414(s).

never have thought about doing that (nor have a desire to do so) not even sure if it could be done in the documents we use.

certainly if it was a safe harbor match (which is not what you have) it has to be possible to receive at least 4% of total comp (not sure how things are viewed if there was a discretionary match that was safe harbor but not made)

[QDROphile]

We have a special defintion of what compensation will be charged for elective deferrals in EVERY plan where we can convince a client to do it. Among other things we do it for clarity of communication. If a particpant is electing some percentage of compensation, you want the participant to have the "correct" compensation in mind for the sake of carrying out the partcipant's intent and avoiding surprises. For most particpants, the compensation they have in mind is regular salary/wages (and overtime) and bonuses, so the next question is whether or not to have a special election for bonuses. If the definition is bigger, and includes non-cash amounts, the take home pay is smaller than anticipated and that is the type of surprise that draws ire.