Tax Facts

3867 / What is compensation for purposes of nondiscrimination in a qualified plan?

Compensation applies in at least three different ways under the IRC when addressing nondiscrimination requirements for qualified plans.

First, when plans are tested for prohibited discrimination in favor of highly compensated employees, one element of the test is the participant’s compensation. IRC Section 401(a)(4) sets the definition of what constitutes compensation for this purpose.

Second, plans must specify the types of compensation that are used to determine benefits or contributions under the plan.

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