Excess Group Term Life insurance is included in all definitions of 415 compensation. True or False?

Excess Group Term Life insurance is not included in all definitions of 415 compensation. For 401(k) plans, 415 compensation refers specifically to the types of income that are considered when determining limits on contributions and benefits. Generally, this includes wages, salary, bonuses, and certain other forms of taxable income, but certain fringe benefits, like excess group-term life insurance, are typically excluded from this definition.

The reason for this exclusion is related to the tax treatment of group-term life insurance. While the first $50,000 of employer-provided group-term life insurance is generally provided tax-free to employees, any amount exceeding this is considered taxable income to the employee. Thus, when calculating compensation for 415 limits, this excess amount is not considered appropriate for inclusion.

By understanding this nuance regarding 415 compensation, individuals managing a 401(k) plan can ensure compliance with IRS regulations and accurately compute contribution limits for participants.