Exclusions from Compensation in Plan Document

Good afternoon!  Generally when we put in exclusions from compensation in the document we state specific items to be excluded.  I have a client that basically wants the document to state that compensation excludes "All Non-Base Compensation".

Would this type of generalized exclusion be viewed as acceptable by the IRS?  The software would support it, under the "Other" exclusions.

Thanks in advance!

If it's definitely determinable and passed 414(s) testing I don't see a problem. So as long as you have "Base Compensation" defined and trackable you should be fine.

2 minutes ago, Lou S. said:

So as long as you have "Base Compensation" defined and trackable you should be fine.

As long as THE CLIENT has Base Comp defined...

Their base comp is labeled as "Regular Compensation" on their payroll.  So should we say somewhere define "Base Pay" as the "Regular" compensation line item on payroll?

1 minute ago, metsfan026 said:

Their base comp is labeled as "Regular Compensation" on their payroll.  So should we say somewhere define "Base Pay" as the "Regular" compensation line item on payroll?

 

You could probably do that in administrative procedures. I mean what if they change payroll systems and and "Regular" becomes something else?

Would it be safer to say:

All participant subsidies (Health, Travel, Moving, Entertainment, etc.)

Just trying to figure out the best way to word it in the document that avoids any issues, but covers what the client is looking to do

47 minutes ago, metsfan026 said:

Would it be safer to say:

All participant subsidies (Health, Travel, Moving, Entertainment, etc.)

I wouldn't.  I don't think Overtime, bonuses, commissions would be considered "subsidies.

I think "Base compensation" or "Base Pay" is good enough, as long as it's calculated the same way for everyone.

And make sure you will pass 414s before you even get started. Clients don't understand how it works and don't realize how rare it is to actually pass.

6 hours ago, Bill Presson said:

And make sure you will pass 414s before you even get started. Clients don't understand how it works and don't realize how rare it is to actually pass.

I don't think 414s is going to be an issue.  The biggest exclusions are bonuses for two HCE (for example, someone made in excess of $300k but the bulk of it was through a bonus therefore the usable salary is around $130k).  Because of that the HCE percentage is around 69% while the NHCE is 92.80%.  Since the NHCE are benefiting more, I'd think it would pass the testing.

So with that in mind, putting the exclusion as "All Non-Base Pay" should be acceptable for IRS standards?