Course 1 Compensation

Question 1

Four alternative definitions of 415 compensation.

Answer 1

W2, Withholding, Statutory, and Simplified

Question 2

Post-severance compensation

Answer 2

not 415 unless it is paid prior to the employee’s severance

Question 3

2 Exceptions to post severance compensation being 415 compensation

Answer 3

if the payment was made within 2.5 months of severance or the payment is made after the last day of the compensation determination year in which severance occurs.

Question 4

Three types of post severance compensation that counts towards 415

Answer 4

regular compensation, leave cash outs, and nonqualified deferred compensation.

Question 5

Benefit of using a safe harbor definition of 414(s) compensation

Answer 5

helps pass the nondiscrimination testing

Question 6

two types of compensation

Answer 6

direct and indirect

Question 7

Direct compensation

Answer 7

wages, salary, overtime, commissions, bonus, holiday, PTO, and deductions included deferrals and section 125

Question 8

Commissions

Answer 8

an amount paid based on sales or amount of productions

Question 9

Indirect compensation

Answer 9

benefits, insurance, reimbursements, expense allowances, fringe benefits, salary reductions (like insurance)

Question 10

section 125

Answer 10

amount contributed by an employee for benefits such as health insurance premiums, flexible spending accounts, health savings accounts, and dependent care assistance programs

Question 11

fringe benefits

Answer 11

trans allowance, GTL, etc

Question 12

Where can you find what compensation the plan uses?

Answer 12

Plan Document

Question 13

What is the compensation limit for a plan not on a calendar year?

Answer 13

the limit is based on the limit in effect at the beginning of the plan year.

Question 14

401(a)17 compensation limit in 2024, 2025

Answer 14

$345,000, $350,000

Question 15

415 compensation

Answer 15

the statutory definition of an employee’s total compensation (gross pay)

Question 16

415 compensation is used for determining…

Answer 16

1. applying the annual 415 limit ($69,000 in 2024, $70,000 in 2025)
2. determining HCE’s
3. determining Key employees
4. calculating a top-heavy minimum contribution
5. calculating the 5% minimum contributions for the gateway test
6. calculating an employer’s deductible contribution limit
7. determining a participant’s actual deferral ratio and actual contribution ratio when ADP/ACP testing.
8. determining whether contributions are nondiscriminatory under the 401(a)(4) test.

Question 17

W2 comp excludes…

Answer 17

tips and nontaxable fringe benefits

Question 18

3401(a) withholding comp excludes…

Answer 18

tips, excess group term life insurance, and nontaxable fringe benefits

Question 19

Statutory compensation excludes…

Answer 19

nontaxable fringe benefits, IRC 83, IRC 83i, nonqualified plan distributions, non-statutory stock option - income includible in year granted, non-statutory stock option income included in year exercised.

Question 20

Simplified compensation includes…

Answer 20

tips, moving expenses, taxable fringe benefits, excess group life term life insurances.

Question 21

What is not included in any definition of 415 comp?

Answer 21

nontaxable fringe benefits, deferrals, section 125 contributions, or 132(f)(4) qualified transportation fringe benefits

Question 22

How do you determine 415 compensation?

Answer 22

Start with one of the 4 definitions of 415 comp then add back deferrals, section 125 contributions, and 132(f)(4) benefits

Question 23

compensation period

Answer 23

a plan may specifically define what period is used to determine the compensation out of the following choices: plan year, fiscal year ending within the plan year, or the calendar year ending within the plan year.

Question 24

First year eligibility under 415 comp

Answer 24

the entire year’s compensation is considered even including pre-participation compensation.

Question 25

What compensation do self employed individuals have?

Answer 25

earned income

Question 26

earned income

Answer 26

revenue-expenses

Question 27

Where do you find earned income?

Answer 27

For sole-proprietor, on the schedule C of the Federal Income Tax Return and for a partnership on the schedule K

Question 28

Plan defined compensation

Answer 28

compensation used for benefits that starts with 415 comp then excludes something.

Question 29

Common plan defined compensation exclusions

Answer 29

comp prior to becoming a participant in a component of the plan, deferrals, section 125 contributions, and 132(f)(4) contributions, comp paid by a related company that is not participant in the retirement plan, comp paid by a division or location of the company.

Question 30

414(s) compensation

Answer 30

compensation used for nondiscrimination purposes, starts with 415 comp then two modification are allowed.

Question 31

414(s) comp modifications

Answer 31

1. Safe harbor - can exclude... - fringe benefits, reimbursements, expense allowances - elective deferrals - only HCE's - pre-participation comp 2. Other modification must be reasonable and satisfy the compensation ratio test

Question 32

Plans that do not require nondiscrimination testing

Answer 32

ADP/ACP Safe Harbor - SH contributions are based on 414(s) comp and Safe Harbor allocation method - nonelective employer contributions are allocated using a pro-rata or permitted disparity method and are non-discriminatory, provided the allocation are based on 414s comp.