Determining Retirement Plan Compensation

Retirement Plan CompensationView This Newsletter: Determining Retirement Plan Compensation


This newsletter explains the intricacies involved with determining retirement plan compensation.

  • Determining Retirement Plan Compensation
    • Compensation used for:
      • Calculating contributions
      • Applying limits
      • Conducting non-discrimination testing
      • Determining tax deductions
  • Overview
    • Four General Definitions
      • W-2 compensation;
      • Withholding wages;
      • Current includible compensation; and
      • Simplified compensation
    • Compensation ratio test
  • Pre-Participation Compensation
    • This pay is usually included, but may be excluded if noted in the plan document
  • Bonuses, Commissions and Overtime
    • The default under the four definitions is that all of these are included unless otherwise noted in the plan document
  • Taxable Fringe Benefits
    • A plan can exclude taxable fringe benefits from its compensation definition
  • Reimbursements and Allowances
    • Distinction between the two
    • Reimbursements are not included as plan compensation, while allowances are included.
  • Post-Severance Compensation
    • Four categories:
      • Amounts earned but not yet paid at time of termination;
      • Payments for unused leave;
      • Distributions from deferred compensation plans; and
      • Traditional severance pay.
  • Self-Employed Individuals
    • Earned income
  • Employees vs. Independent Contractors
    • Distinction between the two
  • Conclusion
    • Determining compensation can be quite complicated.
  • IRS and Social Security Annual Limits
    • The 2015 limits will remain unchanged for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment.
Pinnacle Plan Design is a third-party administrator (TPA) for employer-sponsored qualified retirement plans. We specialize in retirement plan design, administration and actuarial consulting for 401(k)/profit-sharing plans, defined benefit plans, cash balance plans, and 403(b) plans. Pinnacle Plan Design proudly serves businesses nationwide.


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