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We installed our first 401(k) in 1983, and probably been refuting this kind of argument since TRA 86. We also still run across CPAs who say that sole props and partners cannot defer at all because they do not have W-2 income. I have gotten old, tired, and grumpy (quiet Tom Poje!) about this because people cannot produce facts (code or regulations) to support their cause. If you are hired because of your expertise and then the client wishes to over-rule you - well you know where you stand.....

No, it is NOT acceptable. That would make the feature a CODA. It IS acceptable if each partner expresses a desire, but the Plan document must make each allocation a Partnership decision, and the Partnership's governance must be such that it is not an individual partner-by-partner decision.

Why is it that the pension community has to prove itself all the time. Why not make the 'experts' cite code and section for their incorrect positions?

You might see if the logic in the following thread seems to apply to your question: http://benefitslink.com/boards/index.php/topic/44985-impermissible-distribution/ From EPCRS: (4) Overpayment. The term “Overpayment” means a 403(b) Failure due to a payment being made to a participant or beneficiary that exceeds the amount payable to the participant or beneficiary under the terms of the plan or that exceeds a limitation provided in the Code or regulations. Overpayments include both payments either made from the participant’s or beneficiary’s 403(b) custodial account or annuity contract under the plan or not permitted to be paid under the Code, the regulations, or the terms of the plan. However, an Overpayment does not include a payment that is made pursuant to a correction method provided under this revenue procedure for a different 403(b) Failure. Overpayments must be corrected in accordance with section 6.06(4). And: (e) Notification of employee. Except as provided in section 6.02(5)© with respect to the recovery of small overpayments, the employer must notify the employee that the Overpayment was not eligible for favorable tax treatment accorded to distributions from an eligible retirement plan under § 402©(8)(B) (and, specifically, was not eligible for tax-free rollover).

This is easily solved by completing a deferral election with a dollar amount per pay period, rather than a percentage.