Qualified Plan Design: Defining Compensation Code Section 415(c)(3)

Code Section 415(c)(3) provides of framework for how plan sponsors define compensation for Retirement Plan purposes. All possible compensation items are described below, but only those compensation items allowed by your Plan should be used for Plan purposes. It is important that you refer to your Plan Adoption Agreement for a detailed list of additional compensation exclusions in your Plan (see "EXCLUDED COMPENSATION).

Items that may be include as compensation per 415:

  • Wages
  • Salaries
  • Fee for professional services
  • Commissions on sales
  • Commissions on insurance premiums
  • Bonuses
  • Tips

Items excluded as compensation per 415:

  • Employee's receipts from an unfunded unqualified plan
  • Amounts paid under accident and health plans (which are includible in income)
  • Employees' moving expenses
  • Value of non-qualified stock option included in income in the year in which granted
  • Amount includible in income upon making Section 83(b) election
  • Salary reduction amounts (Code Section 125, 401(k), etc)
  • Fringe Benefits and reimbursements: include all amounts in income
  • Costs of group term life insurances in excess of $50,000
  • Amounts realized from exercise of non-qualified stock options or when restricted stock or property become fully transferable and no longer subject to risk of forfeiture
  • Amounts realized from sale or exchange of stock acquired under qualified stock option