Contributions Based on Comp. While Disabled?

[Christine Roberts]

Can "compensation" for purposes of qualified plan contributions include compensation received from an employer during a period of disability, where employer provides full salary for first 90 days of disability, and provides difference between salary and disability benefits thereafter?

Applicable def. of comp. refers only to all earned income, wages, salary etc. rec'd. for personal services actually rendered in course of employment. Does it matter that disiability is expected to last less than 6 months?

[Dave Baker]

Sounds like you might have your answer, if it's really the "applicable definition" ... maybe something for the plan administrator to determine, if there's some ambiguity in the plan's definition?

I'd think it's OK to define (or construe) compensation to include such disability for purposes of ERISA, but you'd have a potential discrimination-in-favor-of-HCEs issue and my guess is that such an expansive definition might go beyond the section 404 definition of compensation, which could be important if the plan is close to the 15%-of-aggregate-compensation deduction limit (for a profit sharing plan).

I seem to recall something fairly recently added to 404 or another code section about plans being permitted to count certain disability payments until retirement age as compensation if the plan so chooses, come to think of it.

[david rigby]

Interesting. Is this comp included in W-2? If so, would that by itself answer the question?

[Guest]

See IRC 415©(3)© which allows a plan to "impute" compensation during a permanent and total disability.

[Christine Roberts]

The plan does not limit definition of compensation to W-2, however only shareholder-employees receive disability coverage and salary continuation benefits, so it appears that basing contributions on the salary continuation benefits would raise the discrimination issue Dave mentioned.