Ubiquity Retirement + Savings has been an affordable provider of retirement solutions designed for small businesses, start-ups, and solopreneurs since 1999.
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When you hear the word compensation, what comes to mind?
For most people, the word just means the money they receive in their paycheck. If you’re a retirement plan sponsor, there are three primary ways of defining the word ‘compensation’ when it comes to plan administration.
Use the following chart as a quick guide to the differences between different kinds of compensation. This is not intended as a complete list, but as an easy reference tool.
Wage/Salary
Included
Included
Included
Overtime, Bonuses, and Commissions
Included
Included
Included
Tips
Noncash tips and tips under $20 per month are excluded
Noncash tips and tips under $20 per month are excluded
Generally included (exclude allocated tips)
Elective Deferrals
Included
Included
Included
Taxable Medical or Disability Benefits
Included
Included
Excluded
415 compensation is used for 401(k) compliance tests, most of which Safe Harbor plans are designed to pass automatically.
However, 401(k) plans with Safe Harbor features can still be subject to top-heavy testing, so these numbers do matter.
Your 401(k) plan provider will send over an Annual Data Request to ensure the correct compensation for the plan is filed each year.
These figures will be used to determine any employer contributions made to the plan. This is particularly important for Safe Harbor plans, which require mandatory employer contributions. Employee compensation is also factored in when applying the annual 415 limit (which is $66,000 for 2023).
Consider including the following items as 415 compensation:
You may leave out:
Logging the correct compensation for employees will prevent a costly correction later. A good 401(k) plan administrator provides a detailed explanation of the different forms that employers are required to fill out, so all the information is accurate the first time around, and there are no costly, time-consuming corrections to make later.
At Ubiquity, we work with small business employers to ensure they understand the Safe Harbor 401(k) and how to test compensation applicable to their plan.
Ask questions to receive immediate answers – over the phone, in chat, or by email.
We’re always here for you! An experienced provider will make it easy for you to meet ERISA requirements mandated by the Department of Labor and IRS compliance standards. Whether you are interested in setting up a new 401(k) plan or would like to change an existing plan, Ubiquity offers attentive and proactive service.
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44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357
© 2023 Ubiquity Retirement + Savings
Privacy Policy
Do not sell my info
44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357