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401k Deduction from Bonus Check


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#1 koo

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Posted 08 October 2009 - 02:04 PM

If the Plan Document is ambiguous as to whether a 401k contribution is deducted from the bonus check, can the company not deduct the contribution from the bonus check? The Plan Document just states the employee may contribute up to a certain % of all applicable compensation. Compensation refers to all W-2 wages. Does that include the bonus? Is there a violation if the 401k deduction has not been made from the bonus checks. If so, how could this be corrected?

#2 david rigby

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Posted 08 October 2009 - 02:55 PM

Compensation refers to all W-2 wages. Does that include the bonus?

If by "refers" you mean the plan definition, then yes W-2 includes a cash bonus.
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#3 BG5150

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Posted 08 October 2009 - 03:19 PM

Compensation refers to all W-2 wages. Does that include the bonus?

If by "refers" you mean the plan definition, then yes W-2 includes a cash bonus.



As long as that cash bonus is paid on a W2, that it. In a prior position, our bonuses were paid on 1099's. Why, I do not know.

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#4 koo

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Posted 08 October 2009 - 05:30 PM

Compensation refers to all W-2 wages. Does that include the bonus?

If by "refers" you mean the plan definition, then yes W-2 includes a cash bonus.



As long as that cash bonus is paid on a W2, that it. In a prior position, our bonuses were paid on 1099's. Why, I do not know.


Thank you for the response? How do I correct this issue? My understanding is that I have to pay the contributions that should have been deducted to the Plan. Can I make them in the form of QNEC's? Our Plan only allows QNEC's to non highly compensated employees. So technically, can't I just give the 401k contributions (that should have been deducted from the bonus checks) to the non highly compensated employees?

If not and I have to give the 401k contributions to all the employees, then wouldn't I fail nondiscrimination testing and have to refund the money to all the highly compensated employees any way.

Any advice would be appreciated.

Edited by koo, 08 October 2009 - 05:31 PM.


#5 Jim Chad

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Posted 09 October 2009 - 12:35 PM

If you give more to NHCEs than to HCEs that cannot cause you to fail testing. It can only help

Question for you administrators out there. Would you put this in the QNEC account or would you put it in the deferral account? FWIW I would put it in the deferral account.

Also, do they have to put in the full amount that would have been deferred or just half?

#6 BG5150

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Posted 09 October 2009 - 12:59 PM

How many years does this go back?

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#7 masteff

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Posted 09 October 2009 - 01:04 PM

Is it to late to retroactively amend the plan definition of comp?
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#8 koo

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Posted 09 October 2009 - 01:31 PM

If you give more to NHCEs than to HCEs that cannot cause you to fail testing. It can only help

Question for you administrators out there. Would you put this in the QNEC account or would you put it in the deferral account? FWIW I would put it in the deferral account.

Also, do they have to put in the full amount that would have been deferred or just half?


I am sorry. I think my response was not clear. I want to know if I have to pay the 401k contributions to all the employees (both HCE and NCHE) for the 401k deferrals that should have been deducted from their bonus checks. If that is the case, wouldn't I have an issue with nondiscrimination testing since I am giving money to more HCE's (since a larger proportion of HCE's recieved their bonuses).

1. Do I correct this operational failure by just giving QNEC's to the NCHE's for the 401k salary deferrals that should have been deducted from bonuses?
2. Do I have to run the nondiscrimination testing again? We have already run it and have refunded the HCE's?

I need a solution.