Comments With Respect to Prop. Treas. Reg. §§ 1.401(A)(4)-8(B)(1) and 9(B)(2)(V)
Governing So-Called “New Comparability Plans”
March 23, 2001

Contents | Introduction | Summary | I | II | III | IV | V

Analysis

I. Allowing Use of a “Reasonable” Compensation Definition

A plan that uses a definition of compensation other than that required by I.R.C. § 415(c)(3)¹ in testing for nondiscrimination would be required to use the I.R.C. § 415(c)(3) definition in determining whether the plan satisfies either the broadly available allocation rate test or the minimum allocation gateway requirement.

This seems to us to be unduly burdensome on plan sponsors. Sponsors of plans that use a definition of compensation that meets the "reasonable" standard of Treas. Reg. § 1.414(s)-1 would still have to collect pay data based on the section 415(c)(3) definition to meet the broadly available test or the minimum allocation gateway requirement.

From a policy perspective, the differences between nondiscriminatory compensation under Treas. Reg. §§ 1.415-2(d)(2) and (3) and nondiscriminatory reasonable compensation under Treas. Reg. § 1.414(s)-1 would seem to be de minimis. The Treas. Reg. § 1.414(s)-1 reasonable compensation definition is used in other contexts already, such as for other Treas. Reg. § 1.401(a)(4) purposes. (See Treas. Reg. § 1.414(s)-1(a)(2)). Furthermore, IRS Notice 89-23, which provides interim guidance with respect to I.R.C. § 403(b)(12) nondiscrimination testing, also specifically allows the use of an I.R.C. § 414(s) definition of compensation for nondiscrimination testing purposes; this presumably includes a "reasonable" base pay definition.

Therefore, we respectfully submit that any plan definition of compensation that satisfies the Treas. Reg. § 1.414(s)-1 "reasonable compensation" standard should also be permitted to be used for either the broadly available allocation rate test or the minimum allocation gateway requirement under these regulations.

Contents | Introduction | Summary | I | II | III | IV | V