Section 415 Compensation

In the case of a plan which satisfied the requirements of section 415 of the internal revenue code of 1986 for its last year beginning before january 1 1987 the secretary of the treasury or his delegate shall prescribe regulations under which an amount is subtracted from the numerator of the defined contribution plan fraction not exceeding such numerator so that the sum of the defined benefit plan fraction and the defined contribution plan fraction computed under section 415 e 1 of.

Section 415 compensation. Some definitions of compensation automatically satisfy irc section 414 s. For example a reference to section. 415 compensation shall be based on the full limitation year regardless of when participation in the plan commences.

The annual contributions made to a 401 k plan are subject to irs limit and nondiscrimination testing. Compensation section 415 compensation continued incorporation by reference when a plan uses a definition of compensation that is intended to satisfy section 415 c 3 the definition must clearly state which acceptable definition is being used to avoid ambiguity. 415 compensation is basically gross wages including any pre tax salary deferrals.

A plan that incorporates irc 415 by reference must specify which definition of compensation it uses. A 401 k provider will typically complete this testing but they must receive correct 415 or 414 s compensation from the employer to do their job right. For example a definition of compensation that includes all compensation within the meaning of irc section 415 c 3 and excludes all other compensation automatically satisfies irc section 414 s.

Section 415 d requires that the secretary of the treasury annually adjust these limits for cost of living increases. 415 compensation means with respect to any participant such participant s a wages tips and other compensation on form w 2 b section 3401 a wages or c 415 safe harbor compensation as elected in the adoption agreement for purposes of compensation. Code section 415 c 3 compensation means the inclusion of the employee s wages salaries fees for professional services and other amounts received without regard to whether or not an amount is paid in cash for personal services actually rendered in the course of employment to the extent that the amounts are includible in gross income code section 415 c 3 compensation includes amounts.

Defining compensation code section 415 c 3 code section 415 c 3 provides of framework for how plan sponsors define compensation for retirement plan purposes. All possible compensation items are described below but only those compensation items allowed by your plan should be used for plan purposes.