An employee who is participating in an employer's SIMPLE plan (IRC Section 408(p))has elected to contribute 6% of his pay each year. The employer contribution election says that the employer will contribute 3% of the compensation (Election II(1) on page 3 of Form 5304-SIMPLE).
The employee had $3,000 withheld of his $50,000 salary, but noticed that the employer's 3% was only about $1,400 because the employer calculated the 3% after the Section 125 deferrals.
415(c)(3)(D)Certain deferrals included.-- The term "participant's compensation" shall include--415(c)(3)(D)(i) any elective deferral (as defined in section 402(g)(3)), and
415(c)(3)(D)(ii) any amount which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125, 132(f)(4), or 457.My question is "does the employer base its contribution on the full salary or after flex plan deferrals under IRC 125?" In other words, if the salary is $50,000 and the employee pays $3,000 for medical insurance on a pre-tax basis should the employer contribute $1,500 ($50,000 * 3%) or $1,410 ($47,000 * 3%)?
Thanks for any help.
Gary