Leaderboard

The election form and the plan definition of compensation should coordinate. I would imagine that a good 401(k) would define earnings in terms of taxable compensation plus salary deferrals (or prior to salary deferrals). The intention in your example surely is that the person, who would, but for the salary deferrals, receive $10,000 and who elects to defer 10% would in fact wind up deferring $1,000, right? Make the plan document, the intention and actual administration all match up. Are there 401(k) plans out there (I do not work on 401(k) plans) that do NOT include salary deferrals in the definition of earnings? At best, if deferrals are not counted in the definition of compensation, don't you wind up with some kind of recursive mess? Let's see: Pay before deferrals is $10,000, elects to defer 10%. That would be $1,000, but then earnings =$9,000, so 10% = $900, but then pay before deferrals is $9,100 so deferral is $910, but wait, then pay = $9,090 and deferral = aw forget it. Just make sure that the definition of pay includes deferrals.

Just out of curiosity, what proof is required of traditional marriages? After 31 years I would be hard pressed to find a copy of my marriage license, and I'm better organized that many people.

Check with the plan's ERISA counsel, but I think that the plan could rely on their tax filing status as "proof" of whether or not they are married. The 1040 instructions for lines 1, 2, ... are pretty clear that you have to be married to file under a 'married' category, and that you cannot file as 'single' if you are married.

The match is discretionary, so the ER can almost do whatever they want whenever. However, the match must be applied per the formula. I would also avoid having a match for the first half, two-thirds of the year and stop when the owner/HCEs have maxed out and cannot defer any more. No notice to EEs is needed. However, it may be good ER/EE relations to let them know.

I am with QDRO on this one. And in my experience situations like this are usually readily cured by saying "we're sorry, we can't do it, but we will give you $X cash instead." If there is a vesting schedule, you can commit to deferred compensation that becomes vested and payable commensurate with the plan's vesting schedule.

Eligibility for the plan should have nothing to do with the deferral election (or lack thereof) of the employee. In many 401(k) plans, if you were once eligible, you become immediately eligible again upon rehire. The document WILL address that.