Understanding Covered Compensation

Covered compensation is defined as the average of the social security taxable wage bases over a period of 35 years up to and including the year in which an employee reaches social security retirement age (SSRA). Covered Compensation for workers with SSRAs in the future change every year when the new taxable wage base (TWB) is published.

The law prohibits discrimination by a plan in favor of highly compensated employees. Under permitted disparity rules, however, a plan may provide a greater benefit for those earnings for which an employee doesn't receive Social Security benefit.

You can use the covered compensation function to define rules that enable you to provide different levels of benefits for earnings above and below the maximum taxable wage base.