YMCA Employers

Definition
of Compensation

Y Retirement utilizes a “safe harbor” definition of compensation that the IRS recognizes as non-discriminatory. This definition ensures uniformity for all participants. Ys have no discretion in determining plan compensation. A Y cannot choose to include amounts that are excluded from the definition. Similarly, a Y cannot disregard amounts that are included in the definition.

The definition of compensation can be summarized as:

Amount that will be reported in Box 1 of the IRS Form W-2

+	Pre-tax contributions to a salary reduction or cafeteria plan
-	Severance paid after termination of employment
=	Compensation reported to the YMCA Retirement Fund

What amounts are included in the definition of compensation?

The amount that is reportable by a Y in Box 1 of IRS Form W-2 (“wages, tips, other compensation”) is the starting point for determining a Y employee’s compensation for plan purposes. Visit the IRS Form W-2 Instructions.

Additionally, the following amounts contributed under a salary reduction agreement must be added to the Box 1 amount to determine compensation for plan purposes:

Pre-tax contributions by an employee under a Section 125 cafeteria plan for qualified benefits (accident and health benefits, group-term life insurance coverage, dependent care flexible spending account, health care flexible spending account, Health Savings Account (HSA), adoption assistance).
Pre-tax contributions by an employee to a Section 403(b) plan, such as Y Retirement’s 403(b) Savings Plan, or a Section 457(b) plan sponsored by the Y.
Pre-tax contributions by an employee to a Section 132(f) qualified transportation fringe benefit plan (used to pay for commuting and parking expenses).

Are payments made to a former Y employee after termination of employment included in the definition of compensation?

Severance is not included
The payout of accrued and unused vacation or other PTO is not included.
Trailing payments (regular pay, overtime and shift differential pay, commissions, bonuses, and other similar compensation) that were payable even if the employee's employment had not ended, as long as those amounts are paid generally within 2½ months following termination, are included in the definition of compensation.

What amounts paid to an employee on military leave?

Differential wage payments to an employee called to active military duty for more than 30 days (Heroes Earnings Assistance and Relief Tax Act of 2008) are included in the definition of compensation.