I have a client who had a 401(a) plan with a 6% employer contribution (it's not a match). They have been including the parsonage allowance as part of employee's compensation - meaning this parsonage allowance

Does anyone know if a parsonage allowance is included in an employee’s compensation? I have a client who has a 401(a) plan with a 6% employer contribution (it's not a match) and they have been including the parsonage allowance in the employee's compensation and the employee has being receiving a 6% match on this. Is this allowed? Also, if you could point me into the right direction of the IRS regs that would be great.

The housing allowance does not count as Section 415(c) compensation. See 1.415(c)-2(b) and note the phrase "to the extent that the amounts are includible in gross income ...".

But, you are not required to use 415(c) compensation to allocate contributions. The compensation definition used to allocate contributions does not even have to satisfy 414(s). Discrimination testing must be performed using a compensation definition that satisfies 414(s). See 1.414(s)-1(a)(2). Section 415(c) compensation is a 414(s) safe harbor compensation definition, but there are other ways to satisfy 414(s).

What definition of compensation does the plan use for determining contributions?