Fix It Guide - How to Correctly Use the Plan's Definition of Compensation

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An important aspect of operating your plan is making sure that you've correctly used the plan's definition of compensation for eligibility, deferrals, allocations, and other purposes. Generally, compensation means the sum of wages, tips, and other compensation subject to federal income tax withholding and the employee's elective deferral contributions. To avoid mistakes, establish plan administrative procedures that require an annual review of employees' compensation. Verify that you consider all appropriate compensation called for in the plan document, including overtime, bonuses, and commissions.