First a confession...Some slacker friends came over to my home last night and I ended up only get 4 hours of sleep. So stating the obvious, I am having a rough day. Ok now on to my current dilemna...

Some other company set up a safe harbor 401(k) plan we have a DB plan for the client. All employees are covered by both plans. His combined DB and matching contributions are under the 25% limit, but once you add in his deferrals the contribution is over the 25% limit. I am trying to convince myself that this is ok because if there wasn't a matching contribution then I wouldn't be worried about this at all.

Total eligible salary = 272,300
Total DB contribution = 59,275
Total Match contribution = 8,169
Total Deferals for 2005 = 14,000

25% of eligible comp = 68,075

If I subtract the DB and matching contributions from the 25% limit, the plan is $631 under the limit.

What are my options here?

1)Tell them to return all of the deferrals less $631?
2)Eliminate the match contribution (although it is safe harbor and I don't think can just be done away with).
3)Or I am confused and deferrals don't count against the 25% limit anymore, the plan is fine.
4)Something else.

Of course I want to vote for #3 !!

The answer is 3. See IRC Section 404(n).

The deferrals are no longer employer contributions. Been that way for a few years now.

This is the reason why DB/401k combos are selling so well now. The 401k deferral is not counted
against the deduction limits.

Your situation is interesting, because you come out with no problem. Your db contribution is much
more modest that some I see.

If your db contribution had used up the entire 25% deduction, the safe harbor 401k match could still have
been made to the plan. This would not be deductible, but no excise tax would apply.
Then the 401k deferrals would be protected against refunds at year end from a failed ADP test.

I kind of suspected that this was the case. I knew that employee contributions didn't count against deductibility if there was no matching contribution, but for some reason I was unsure once matching contributions came into the picture. I know this makes sense from a logic point of view, but the more I learn in this field it seems like I find things that don't make sense too often.

I came back here to say that I found the answer in the pension asnwer book. For some reason I couldn't find it this morning. I'll blame it on my lack of sleep.

By the way, I really do appreciate everyone that contributes to these boards. Sometimes you just need a little push in the right direction. I don't come here very often, but when I do, it seems like I always get good quick advice. Now I don't have to go ask Bill (in my office) and listen to him harass me about how I should know the answer already. Half the time I don't even think he knows the answer but can play it off like he does and just tell me to go find it in one of the pension reseources we have.

So thanks again everyone for your replies.

Don't forget to check the 415 limit.

yeah, 415(e)

Andy - that reference was wicked but funny!