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Is it OK not to take out 401(k) contributions if paycheck is small?


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Hi, this is my first post here.

Here is the situation. EE received a small paycheck due to working less hours. The Paycheck was for $700 dollars (enough to cover premiums). $200 taken out for Medical insurance ($500 left in paycheck), then a $320 HSA deduction came out ($180 left in paycheck), then a Dependent FSA deduction of $192 was next in the hierarchy order to come out, but because there was only $180 left in the paycheck, the $192 Dep. FSA deduction did not come out (it is coded as all or nothing). Because there was not enough funds for the Dep. FSA deduction to come out, all further deductions stop including her 5% 401(k) election which was next in line to come out.

My question is, did we needed to take out the 5% 401(k) out of the remaining $180 paycheck? (jumping the Dep. FSA deduction), or should we taken out a partial $180 Dependent FSA deduction and no 5% deduction (because the paycheck is down to zero)? Or, is it okay not to pull the 5% deduction and not Dep. FSA deduction and pay the EE the remaining $180 (which is what we did).

I appreciate any help with this.

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Problems about a worker lacking enough wages to support all contributions are challenging.

Often, the health, welfare, retirement, other employee-benefits, and fringe-benefits plans’ documents don’t tell an employer/administrator what to do.

Here’s a link to an earlier BenefitsLink discussion https://benefitslink.com/boards/index.php?/topic/38395-401k-elective-deferral-hierarchy/

 

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Thank you. Our Plan Document does not state what to do (similar to the discussion you linked).  The issue is that most 401(k) deferral rates are %, so there will always be enough wages - even when the check is down to a few bucks. 

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I think it's perfectly reasonable to do what you've done. It might be a good idea to have operating procedures that mimic what you did. And of course disclosure to the participant in advance would be good.

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15 hours ago, richyboycaldo said:

Thank you. Our Plan Document does not state what to do (similar to the discussion you linked).  The issue is that most 401(k) deferral rates are %, so there will always be enough wages - even when the check is down to a few bucks. 

Not necessarily - it's still a % of the gross which could be less than what's available after other deductions (e.g. an extreme 90% deferral rate). 

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