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Why does the McKay Hochman Co., Inc. EGTRRA Basic Plan Document use Code Section 3401(a) compensation as the default definition of compensation? Section 3401(a) compensation is based on a participant’s actual earnings against which there is income tax withholding. Employers generally find it easier administratively to use this as the plan’s definition of compensation than Section 6041/6051 or Section 415 compensation. The other types of compensation available within our prototype include wages that are likely not part of a participant’s paycheck, yet are included on the W2 at the end of the year. These amounts include non-cash fringe benefits. Employers electing to use these other types of compensation could find themselves running into a situation where employer contributions are calculated incorrectly, since in many situations the compensation used in calculating per payroll employer contributions is based on the earnings that are actually included in a participant’s paycheck. It is hard to accurately defer against amounts that are not reflected as cash earnings.
To learn more, call 973-492-1880 or e-mail info@mhco.com. © 2012, McKay Hochman Co., Inc. All rights reserved. |
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