CovComp returns the Covered Compensation amount as defined by IRS Section 401(l)(5)(E)(i). Covered compensation with respect to an employee as the average of the contribution and benefit bases (wage base) in effect under section 230 of the Social Security Act (“Act”) for each year in the 35-year period ending with the year in which the employee attains Social Security retirement age.

Section 401(l)(5)(E)(ii) states that the determination for any year preceding the year in which the employee attains Social Security retirement age shall be made by assuming that there is no increase in the wage base after the determination year and before the employee attains Social Security retirement age.

Covered compensation is further defined in 26 CFR 1.401(l)-1(c)(7)(i). The use of a rounded table is provided in 26 CFR 1.401(l)-1(c)(7)(ii)(a). The method of rounding is not actually defined, but this has been: round to the nearest $3,000, but not more than the final year wage base.

Note: After 1993, IRS does not authorize the use of covered compensation tables rounded to $600 multiples under 401(l). Thus, integrated plans using this table are not safe-harbor plans.

Covered compensation tables are published annually by the IRS:

·        Tables for 2022 are published in Rev. Rul. 2022-2.

·        Tables for 2023 are published in Rev. Rul. 2022-24.

Syntax

CovComp (DeterminationYear, YOB, [WageInflation], [LawYear], [Rounding])

Parameter Name	Description
DeterminationYear	The year for the value that is wanted.
YOB	Year of birth.
WageInflation	Rate of increase in National Average Earnings (NAE). NAE is used to determine the Social Security Wage Base. Applies only if DeterminationYear is later than LawYear. Optional, default = 0%
LawYear	Law year. DeterminationYear later than LawYear is a projection Optional, default = DeterminationYear.
Rounding	Rounding method: Rounding Description 1 Round to the nearest $1. (Represents exact average of wage bases, as permitted by law and.) 12 Round down to next multiple of $12. 600 Round to nearest multiple of $600.* (After 1993, IRS does not authorize the use of covered compensation tables rounded to $600 multiples under 401(l). Thus, integrated plans using this table are not safe-harbor plans.) 3000 Round to nearest multiple of $3,000.* exact No rounding. Optional, default = 12. *In some cases, you do not round to the nearest multiple of $600 or $3,000 -- you round up to the final year wage base instead. For example, look at the CovComp calculation for year 2020 with YOB=1983.