Compensation for ADP/ACP Test

[pam@bbm]

I have a 401(k) Plan that uses base compensation of "wages, tips, and other compensation as reported on W-2".      Bonuses are included for deferral calculations.   Bonuses are excluded for match contribution calculation.      Plan document says to use 414(s) compensation for ADP/ACP testing, but doesn't define 414(s).      Do I use the total base OR total base less bonus for ADP/ACP?    

[Mike Preston]

Uh, you use 414(s).  That gives you a lot of flexibility.

[Tom Poje]

depending on your software's capability, you could use total comp for deferral and comp less bonus for match (assuming that comp definition passes 414s).

[CJ Allen]

In order to test without bonus, it seems the compensation excluding bonuses would need to pass the compensation ratio test comparing included compensation to total compensation (or total eligible compensation).  However, the document should allow testing on 414(s) compensation where you would test both the ADP & ACP using the compensation that includes bonuses.  As Tome Poje indicates, the software you use may require you to use 1 compensation definition for both tests anyway.

[mmustafa]

If the software is Relius Administration, then i think, the ADP compensation can be reported with Including bonus and ACP with excluding bonus. 

[Luke Bailey]

I haven't seen many plan documents with separate definitions of compensation for deferrals and match. Are you sure that including bonuses for deferrals, but not for match, is consistent with plan document?

Second, I'd really want to see the plan document's wording regarding testing compensation. Does it say that for testing you use ANY 414(s)-compliant compensation definition, or the 414(s)-compliant compensation definition that you used for allocation purposes?

[EBECatty]

On 3/6/2018 at 7:14 AM, Tom Poje said:

depending on your software's capability, you could use total comp for deferral and comp less bonus for match (assuming that comp definition passes 414s).

I work with a plan that does this. It's individually designed so we have leeway. The definition of comp for deferrals is W-2; for matching it's W-2 less bonuses. They test ADP on total W-2 comp and test ACP on W-2 comp less bonuses. The comp calculation on W-2 less bonuses passes the ratio-percentage test as it's mostly the executives getting disproportionately large bonuses.

[Tom Poje]

if not familiar with it, on Relius you would have plan specs set to the comp definition then run eligibility. it does no good to change specs after the fact. as an alternative you could plug the desired comp in the computed fields if for some reason you desire not to rerun eligibility.

just because match comp does not include bonuses you could test on total comp, in fact would have to if you failed the comp test.