How is the definition of compensation used for qualified retirement plans?
Rev. 01/01/01

First, it determines the amount of contributions that the employee and employer can make to the plan. Second, it is a key factor in the performance of the annual qualification and nondiscrimination tests imposed under the Internal Revenue Code. Finally, it is used to determine employee status as highly compensated and key employees.

Although a qualified plan may adopt any reasonable definition of compensation for purposes of allocations or elective deferrals, the general nondiscrimination requirements dictate that the definition not discriminate in favor of a highly compensated employee by more than a de minimis amount.