transfer from benefits eligible status job to a non-benefits eligible job & 401(k) plan compensation

GM-

We have folks who move from regular benefits eligible jobs to non-benefits eligible jobs during the year.

401k plan compensation is W-2 wages +401(k) deferral less fringe benefits. Plan counts all comp not just comp from entry.

Question: Payroll has been sending wages every 2 weeks to our 401k provider including wages when the employee is in a non-benefits eligible position.

Do we count this non-eligible status pay for plan compensation? If you have a code section that addresses this please provide.

Much thanks!

Lexy

Sounds like you should check the plan's definition for compensation.  It's probably just like when someone new starts being eligible for a plan on July 1, the document may or may not to include pre-participation compensation for plan purposes.  This is similar inasmuch as the employee's job classification makes him ineligible at various points, so the document will tell you whether to include "only as a participant" wages or not.

Bri is on target. 

While you are checking the plan provisions, keep in mind that the plan document contains many definitions of compensation for compliance purposes that can be different from the definition of compensation used to calculate contributions.  For example, there can be a different definition of compensation used for ADP testing, 415 limits, and deduction limits.  You should also check with the plan service provider(s) to confirm that the correct definition of compensation is being applied correctly as appropriate to the services provided.

Is the "non-eligible pay" defined in the plan document? you mention that plan compensation is based on W-2. If the "non-eligible pay" is reported on a W-2, and the document does not exclude it specifically, sounds like you need to include it. 

More than once I've had employers operate plans by excluding certain types of pay, certain classes of employees, etc, but if those exclusions aren't in the written plan document, and also passing testing, they need to be part of the plan. Just having it in a handbook, or mentioning it upon hiring, etc, or just have it written in HR isn't enough.