Certified Plan Sponsor Professional (CPSP) Practice Exam

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Under IRC Sec. 415(C), what options are permissible for the definition of compensation?

Statutory, W-2, Simplified, 3401 wage withholding
Hourly, salaried, commission-based, bonuses
Net income, gross income, taxable income
Only regular salary

The correct answer is: Statutory, W-2, Simplified, 3401 wage withholding

The correct choice is rooted in the definition of compensation under Internal Revenue Code Section 415(c). This section outlines that permissible definitions of compensation can vary and include various forms of income. The inclusion of statutory, W-2, simplified, and 3401 wage withholding in this choice highlights that the IRS allows for standardized methods of reporting compensation for employees, particularly through mechanisms like W-2 forms, which are used for reporting wages paid to employees. Statutory definitions refer to those established by law, ensuring that they comply with federal standards. The mentioning of 3401 wage withholding pertains to the classification of earned income for tax withholding purposes, which is also a common and accepted form for defining compensation. This understanding illustrates that the definition of compensation under IRC Sec. 415(c) is broad and encompasses various types of earnings documentation, making this choice the most comprehensive and accurate among the options provided. Other choices either narrow the definition too much or do not align as closely with the terminology and classifications recognized by IRS regulations.