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#1859567 - 10/08/13 06:06 PM total compensation
dottiec Offline
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I'm trying to understand the concept of what makes up total compensation.

I understand the Box 5 of the W-2 form and the 1099-MISC.

I am confused by the wording "At the election of the person paying the compensation, all contributions by the creditor or loan originator organization to the individual loan originator's accounts in a designated tax-advantaged plans that are defined contribution plans."

Does this mean the portion of matching funds the bank puts in a 401K? And what exactly does "at the election of" mean?
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Loan Originator Compensation Rule
#1859661 - 10/08/13 08:16 PM Re: total compensation dottiec
Tesla Offline
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I am trying to figure out the same thing too. I am guessing the creditor can choose to include compensation from one year to the next for some tax advantage but I don't know. I hope someone chimes in.

Also, you add in the bonus to the total compensation calculation and then you take 10%??????


Here's an example:

Banker salary: $30,000+$1,500 in mortgage-related incentive pay + $500 gift card for most mortgages; $1,050 in Profit Sharing;+ $500 bonus drawn from pool that includes mortgage income = $33,500 total compensation.

$3,550 is non-deferred income

10% of total compensation is $3,350, so is $200 prohibited?
Last edited by Tesla; 10/08/13 09:03 PM. Reason: provide example
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#1859979 - 10/09/13 05:51 PM Re: total compensation dottiec
Tesla Offline
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Bump
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#1859989 - 10/09/13 05:56 PM Re: total compensation dottiec
hgliii Offline
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IMO, it would be determined by how the profit sharing is determined. If it is across the board to every employee, then you would be safe. If it is based on mortgage loan production of LO as primary consideration, then the $200 would be prohibited.

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#1859996 - 10/09/13 06:01 PM Re: total compensation dottiec
Tesla Offline
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I am confused on the profit sharing. I thought it said if any of the funds in the profit sharing pool are from mortgage profits it is counted. I thought that was the basis of why peiople were upset they madet he exclusion for 401(k) but not profit sharing.

So your interpretation/understanding is profit sharing is only counted if it based solely on the LO's productivity not pooled activity? Our contribution is across the board and is partly funded with profits from the mortgage division. So confused!
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#1860021 - 10/09/13 06:23 PM Re: total compensation dottiec
hgliii Offline
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No. I apologize and will try to clarify. If the profit sharing is based on the total profit of the corporation and not just on loan origination, it is does not effect the compensation.
example:
XYZ bank shows a bankwide profit of $100,000 and they pay a bonus based on longevity to each employee. NO Problem.

XYZ Bank shows a profit in Mortgage loans of $100,000 and they pay "A" LO a bonus of $20,000 because he produced 20% of the profit then you have a $10,000 violation.
The bank here has a profit sharing plan based on the total profits of the bank and employees share in it based solely on longevity. Legal has determined it does not effect the LO Comp.
Last edited by hgliii; 10/09/13 06:27 PM. Reason: additional comment
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#1860026 - 10/09/13 06:31 PM Re: total compensation dottiec
Tesla Offline
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Got it - so this whole LO comp thing is basically a non-issue for most banks right? In other words, this was written more for brokers, etc.

Ugh - so I re-read the commentary and I am hung up on this statement "Compensation under a non-deferred profits based compensation plan is not subject to the 10% limit if the non deferred profits based compensation plan is determined with reference only to profits from business other than mortgage related business."

So if the total profits of the bank include mortgage related profits aren't they indirectly impacting profits distributed through profit sharing??
Last edited by Tesla; 10/09/13 06:42 PM. Reason: Re-read commentary
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#1860081 - 10/09/13 07:17 PM Re: total compensation dottiec
hgliii Offline
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As long as you do not give a disproportionate share of profits based on LO mortgage production, you should be OK. The total profits of the bank will include auto, unsecured, credit card, etc. income. And, yes the LO comp is basically targeting those entity trying to get around the LO Comp 10% bonus limit. The other thing the 10% is addressing is targeting profits from LOs increasing rates to effect profits and receiving bonuses based on the profits from those activities.

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#1860233 - 10/10/13 01:52 PM Re: total compensation dottiec
Tesla Offline
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I do not mean to be argumentative but I see a discussion on the ABA site with the same conclusion I have come to (profit sharing is included if profits are derived from mortgage income), so where are you finding the disproportionate language? I want to believe you are right, I just need to support the conclusion.
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#1860247 - 10/10/13 02:18 PM Re: total compensation dottiec
hgliii Offline
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I am looking at the 2013 Loan Officer Comp Rule from CFPB page 41,where it deals with bonus compensation. I am referencing a banks total profits and not just the profits based on mortgage lending. If your bank had a mortgage lending subsidiary or division that was a profit center, I think you would have a problem paying out a bonus from that profit. JMHO

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#1860248 - 10/10/13 02:21 PM Re: total compensation dottiec
Tesla Offline
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Great! I will check that out.
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#1864659 - 10/24/13 04:59 PM Re: total compensation dottiec
What to Do Offline
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Regarding the safe harbor for individual loan originators, Comment 36(d)(1)-3vG it indicates "receives compensation form a person" would that mean a creditor?

Not sure about the accounting or statement provided,what should the statement indicate to get the safe harbor?

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#1878335 - 12/12/13 11:19 PM Re: total compensation dottiec
BTJ Offline
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I believe that it states that if profits are not divided out between bank and mortgage, then all profits are included in the 10% rule. Otherwise, if the profits are strictly from the bank and not from the mortgage company, then the 10% limit is not required. Therefore our legal did not agree with the same conclusion as hgliii. I would validate with legal counsel.

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#1878795 - 12/16/13 03:05 PM Re: total compensation dottiec
hgliii Offline
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Since I am not an attorney, my conclusion came from our legal counsel. An attorney/legal counsel opinion is only good when we have a final determination by regulators or by court decision.

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#1879750 - 12/18/13 02:40 PM Re: total compensation dottiec
pacar Offline
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I am trying once and for all to wrap my head around the 10% limit and I think I'm close. But I'm getting hung up on the employer match for a 401(k) plan.

Annual Salary = $60,000.
Profit Sharing Lump-Sum Contribution = $3500 (based on net-income, including profits from mortgages)
401(k) Employer Match of 3% = $1800.
Total Compensation = $65,300.
Bonus may not exceed $6,530.

OR do I exclude the $1800 401(k) match from the calculation, making the total compensation $63,500 with a max bonus of $6350?

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#1879757 - 12/18/13 02:45 PM Re: total compensation dottiec
Tesla Offline
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My understanding is the 401(k) match would be excluded as deferred compensation. The profit sharing could be excluded if it is directly deposited into a deferred compensation account like a 401(k) plan. If they get a check for the profit sharing it is included. The idea being no access to the funds in the direct deposit to the 401(k) but if paid directly to employee- they have access to the money.

Just my understanding though.
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#1879768 - 12/18/13 02:57 PM Re: total compensation dottiec
pacar Offline
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Ok - that makes sense, Tesla. The profit sharing also goes in to a tex-deferred account, so in my example it appears as though total comp would be $60,000 with a max bonus of $6,000.

Thanks!

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#1880173 - 12/19/13 01:44 PM Re: total compensation pacar
Deena Offline
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Originally Posted By: pacar
I am trying once and for all to wrap my head around the 10% limit and I think I'm close. But I'm getting hung up on the employer match for a 401(k) plan.

Annual Salary = $60,000.
Profit Sharing Lump-Sum Contribution = $3500 (based on net-income, including profits from mortgages)
401(k) Employer Match of 3% = $1800.
Total Compensation = $65,300.
Bonus may not exceed $6,530.

OR do I exclude the $1800 401(k) match from the calculation, making the total compensation $63,500 with a max bonus of $6350?

I believe the bank has the option of whether or not to include the 401(k) contribution (and/or the bonus) in the 10% calculation - depending on whether you're trying to increase the amount permissible for the bonus. From the Commentary:

Quote:
A. Total compensation. For purposes of 1026.36(d)(1)(iv)(B)(1), the individual loan originator's total compensation consists of the sum total of: (1) all wages and tips reportable for Medicare tax purposes in box 5 on IRS form W-2 (or, if the individual loan originator is an independent contractor, reportable compensation on IRS form 1099-MISC) that are actually paid during the relevant time period (regardless of when the wages and tips are earned), except for any compensation under a non-deferred profits-based compensation plan that is earned during a different time period (see comment 36(d)(1)-3.v.C); (2) at the election of the person paying the compensation, all contributions that are actually made during the relevant time period by the creditor or loan originator organization to the individual loan originator's accounts in designated tax-advantaged plans that are defined contribution plans (regardless of when the contributions are earned); and (3) at the election of the person paying the compensation, all compensation under a non-deferred profits-based compensation plan that is earned during the relevant time period, regardless of whether the compensation is actually paid during that time period (see comment 36(d)(1)-3.v.C). If an individual loan originator has some compensation that is reportable on the W-2 and some that is reportable on the 1099-MISC, the total compensation is the sum total of what is reportable on each of the two forms.

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