Which type of compensation is used for nondiscrimination testing purposes?

The type of compensation used for nondiscrimination testing purposes is 414(s) Compensation. This term refers to a specific definition of compensation outlined in the Internal Revenue Code that is utilized to ensure that retirement plans, like 401(k)s, meet requirements related to nondiscrimination testing. These tests are designed to ensure that the benefits provided by the plan do not disproportionately favor highly compensated employees when compared to non-highly compensated employees.

414(s) Compensation generally includes wages, salaries, and other forms of remuneration for services, but it is specifically defined in a way that aligns with the testing requirements. This is crucial for maintaining the plan's tax-qualified status and preventing discrimination against lower-paid employees.

Other types of compensation mentioned, such as 401(k) Compensation, may be relevant in the context of contribution calculation or other plan provisions, but they do not have the specific role of serving as a standard for nondiscrimination testing. Employee benefits compensation and 409(a) Compensation are also not recognized definitions used for these particular testing purposes. Therefore, only 414(s) Compensation meets the established criteria necessary to conduct nondiscrimination testing in a compliant manner.