25% of eligible compensation deductible limit

For DC plan deductible limit, in a plan with a last day requirement, does eligible compensation include compensation of participant who terminated before the end of the plan year?  Thanks.

No, unless it has a 401(k) Provision.

Good Luck!

Edited. Looks like the document I pulled up was from some Examination Guide put out by the TEGE folks. I'm not able to find a date for it.

It doesn't look like there's official guidance aside from the PLR that NJ Mike cited, so I'll defer to that!

10 minutes ago, duckthing said:

From an IRS document on calculating 404 limits:

 

Where (and when) is this from?  It seems to be the opposite of what was said in Private Letter Ruling 201229012.

Mike

Thanks for all the quick responses.   I posted this for a coworker and more facts have come to light.  It's a start up profit sharing plan for calendar year 2017.  If we make effective date 1/1/17 and not add last day requirement until 2018, it's my understanding that we can include all 2017 comp the terminated participant since he will be eligible for an allocation.  If that doesn't sound right, we appreciate any further advice.  Thanks.

there are 2 schools of thought.

anyone 'benefitting' under the coverage rules can be included whether they defer or not.

the other thought is that, since 2002 since deferrals are no longer counted toward the 25% deductibility issue it doesn't make sense to consider deferrals at all. so if someone doesn't receive a ps contribution (or match) don't include their comp. in other words, since for purposes of the 25% deduction limit you only consider employer contributions, then only folks who receive employer contributions should be considered.

1 hour ago, Tom Poje said:

there are 2 schools of thought.

anyone 'benefitting' under the coverage rules can be included whether they defer or not.

the other thought is that, since 2002 since deferrals are no longer counted toward the 25% deductibility issue it doesn't make sense to consider deferrals at all. so if someone doesn't receive a ps contribution (or match) don't include their comp. in other words, since for purposes of the 25% deduction limit you only consider employer contributions, then only folks who receive employer contributions should be considered.

This IRS has tried, informally, to suggest that.  But, according to the Code, Deferrals are still treated as Employer Contributions for all plan purposes.  They are merely made pursuant to employee elections.  I can see the logic behind them changing it to be more consistent, but (like many other things) they need to give official guidance that can be relied upon. All they have to do is rule that deferrals are no longer "employer contributions".  I'm not sure, but that may require an act of Congress; the 401(k) Code seems to define them as Employer Contributions.

Good Luck! 

Anybody who includes comp from those who are NOT benefitting under 410(b) is simply hanging their client out to dry.

mike - I don't think anyone here suggested that

the argument is can you include someone's comp who could defer but doesn't. (or for that matter,  whether you should ignore any 401k eligibility since deferrals don't count toward deduction.

under the coverage rules anyone who could defer even if they don't are considered benefitting.  I think the IRS biggest concern is providing a big cash balance to HCEs, then nothing (or just deferrals) in a DC plan, but being able to use their compensation toward the 6% maximum. it seems like cheating.

You misunderstand my application of 410(b).  It is applied twice. The application with respect to deferrals is irrelevant.  The application with respect to non-"401(k)-deferrals" is what I'm talking about.  

"I think the IRS biggest concern is providing a big cash balance to HCEs, then nothing (or just deferrals) in a DC plan, but being able to use their compensation toward the 6% maximum."

It is clear that you can't do that.

9 hours ago, Mike Preston said:

It is clear that you can't do that.

To your point, the IRS has referenced Section 404(n) of the Code as the authority for saying you cannot do that.  

Elective deferrals not taken into account for purposes of deduction limits

I learned something too.

THANKS!

I have a nit-picking question on this. Section 404(a)(3) refers to a deduction limit which takes into account the compensation of "beneficiaries" under the plan. the IRS, In PLR 2012229012, as noted above, appears to say that this means the employee who is eligible to defer, even if they DO defer, does not have their compensation counted unless they receive an "employer" contribution. 

What about in an ESOP? 404(a)(9)(A) refers to the compensation paid to "employees" when calculating limits. That's a difference from "beneficiaries." Does this mean that compensation from employees who receive no allocation may be considered? Seems like a stretch to me.