401(a)(17) limit and Plan Definition of Comp

Question about the interaction between the 401(a)(17) limit and a 401(k) Plan that has one or more exclusions from its definition of compensation -- e.g., bonuses are excluded.  In figuring out Plan compensation, which applies first – the Plan’s definition or the 401(a)(17) limit? Example (for 2019, in which the 401(a)(17) limit is 280,000). Total compensation is 300,000, which includes a bonus of 10,000. If I first apply the Plan’s definition and then apply the limit: compensation is 290,000 and compensation for the Plan is the lesser of 290,000 and 280,000, so: 280,000. If I first apply the limit and then apply the Plan’s definition: compensation is the lesser of 300,000 and 280,000, so 280,000, then back out the bonus, so comp would be 270,000. I have looked for guidance/authority and the only thing I have found so far is one ASPPA Power Point that says apply the Plan’s definition first, then apply the limit, but no citation for that. Anyone?

I don't think you're going to find a specific cite, but the limit is a limit on compensation. The bonus isn't compensation, according to the plan. So you wouldn't limit comp and then reduce comp.

Because of this, the 414(s) test gets harder to pass. Since you aren't actually impacting this HCE, the exclusion doesn't apply. If it's the only HCE and the staff have any bonuses excluded, you're very likely to fail that test.

I hate compensation exclusions for this reason.