TAX EXEMPT PLANS: What Is "Compensation," Anyway?

In 403(b) plans, like any deferred compensation arrangement, compensation can have many meanings. There is the compensation that a participant electively defers into the 403(b) plan pursuant to a salary reduction agreement, and the compensation that forms the basis for employer nonelective contribut...

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Bibliographic Details
Published inJournal of pension benefits Vol. 16; no. 3; p. 39
Main Author Klein, Amelia M
Format Journal Article
LanguageEnglish
Published New York Aspen Publishers, Inc 01.04.2009
Subjects
Compensation
Compensation plans
Deferred income
Internal Revenue Code
Tax exempt
Wages & salaries
United States > US
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Summary:In 403(b) plans, like any deferred compensation arrangement, compensation can have many meanings. There is the compensation that a participant electively defers into the 403(b) plan pursuant to a salary reduction agreement, and the compensation that forms the basis for employer nonelective contributions. For a 403(b) plan, the term "participant's compensation" is different. It is not Code Section 415(c)(3) compensation; rather, it means the participant's "includible compensation" as determined under Code Section 403(b)(3). The first difference between "includible compensation" and "participant's compensation" is the period of measurement, particularly with respect to employees who do not work full time. Although no good faith amendment is required in a 403(b) plan to comply with the final Code Section 415 regulations, a plan sponsor may wish to amend the definition of compensation for the purpose of elective deferrals to include those elements of post-severance compensation that are permitted under those final regulations.
ISSN:1069-4064