Transplant Posted yesterday at 04:17 PM Posted yesterday at 04:17 PM Client would like to change the compensation definition to exclude bonus pay (which they pay at year-end) and have not paid for 2025. The plan is Basic Safe Harbor Match, based on the IRS guidance (2016-16) in part, a mid-year change of the compensation definition for matching contributions is allowable if the definition change is made retroactive for the entire plan year and satisfies notification requirements. The types of changes discussed "The Change in compensation must not be retroactive in a way that would reduce benefits. For example, if the change excludes certain types of compensation (like bonuses), it must be applied consistently to the entire plan year and cannot retroactively affect contributions already made." per the client they make bonus contributions at the end of year and to date have not made bonus payments in 2025. Legal resource states this would be reduction in benefit and if an amendment was made that Safe harbor status would be lost for the year. Thoughts?
justanotheradmin Posted yesterday at 04:41 PM Posted yesterday at 04:41 PM Is 2025 a typo? Are you asking if 2025 Safe Harbor Match benefits can be reduced? What is the plan's definition of compensation? Is it W-2 based? If yes, then there is no cutback for 2025 because the final compensation for 2025 is already done. Excluding bonus for 2025 would have no affect if no bonus was paid during the calendar year. Unless perhaps there was a bonus paid in Jan 2025 that was for work performed in 2024. In that case, I agree, not allowed because its a cutback. Any amounts paid now, in 2026 would appear on a 2026 W-2. Even if for work performed in a prior year. Could you clarify? Are you proposing amending now for 2026? To exclude any bonus paid in 2026? Does the plan have a 12/31 year end? Or a different plan year end? I'm a stranger on the internet. Nothing I write is tax or legal advice. I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?
Transplant Posted yesterday at 04:47 PM Author Posted yesterday at 04:47 PM My apologies, yes that was a typo. This is all pertaining to 2026. Client would like to change the compensation definition to exclude bonus pay (which they pay at year-end) and have not paid for 2026. Compensation definition is W-2 wages, with no exclusions. The plan year end is 12/31
CuseFan Posted yesterday at 08:58 PM Posted yesterday at 08:58 PM What is the bonus practice of the employer? Even if allowed in form via a current amendment, you should verify that excluding bonuses would not result in a discriminatory definition. For example, if bonuses are across the board but HCEs are already at or near the 401(a)(17) maximum compensation such that little to none of their bonuses are excluded in practice, that could very well prove discriminatory. Kenneth M. Prell, CEBS, ERPA Vice President, BPAS Actuarial & Pension Services kprell@bpas.com
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