How should our employee benefits plan determine compensation for contributions and allocations?
Rev. 01/01/01

For purposes of determining contributions and allocations, a plan may include or exclude elective deferrals to 401(k) and cafeteria (Section 125) plans. In addition, non-standardized prototype and individually designed plans may exclude such items as commissions, overtime, and bonuses or amounts over a specified dollar limit from the definition of compensation for deferral and allocation purposes. Further, a plan may limit compensation to the time an employee is a participant.

COMMENT: Excluding elective deferrals when determining plan contributions penalizes those employees who make pre-tax contributions to 401(k) and cafeteria (Section 125) plans. This clearly sends the wrong message to participants!