Safe Harbor 401(k) Definition of Compensation

In a safe harbor 401(k) plan (non-QACA), is it permissible to have different definitions of compensation for deferrals and safe harbor matching contributions? For example--for purposes of deferrals, compensation is defined as all compensation within the meaning of Code §415(c)(3), including bonuses. For purposes of calculating the safe harbor matching contributions, bonuses are excluded.

Is that allowed?

Discussed here: 

I eventually came around to the view that what you suggest is permissible.  You would have to perform a 414(s) compensation test on the definition of compensation used to compute the safe harbor matching contributions (and make sure the client is prepared for the possibility that it might fail one of these plan years).

My initial reaction is that a SH plan may use a different definition of compensation for deferrals versus matches.  Of course, any SH compensation definition must satisfy 414(s) definition of compensation: Either (i) one of the four definitions under the 415 Treasury Regulations; (ii) one of the four definitions under the 415 Regs as modified under the 414(s) Regulations or (iii) any "reasonable definition of compensation" test under 1.414(s)-1(d).

Your definition of compensation above would have to meet prong (iii)--it does not satisfy any of the safe harbor definitions under (i) or (ii). 

 I cannot recall if there has been any IRS guidance on this issue. 

I believe this will require BRF testing as well - benefits rights and features if the match excludes compensation.

Thanks!

I wouldn't perform any BRF testing on the available rate of matching contributions (assuming one matching formula applies to all eligible employees).  It's not just a reasonable definition of compensation but (assuming that 414(s) test passes) it is one that satisfies 414(s).  Just because there are exclusions doesn't mean that BRF testing is needed.

7 hours ago, MWeddell said:

Discussed here: 

I eventually came around to the view that what you suggest is permissible.  You would have to perform a 414(s) compensation test on the definition of compensation used to compute the safe harbor matching contributions (and make sure the client is prepared for the possibility that it might fail one of these plan years).

 

 

Thanks, MWeddell! Of course, I found your earlier discussion right after I posted this question. Very helpful.