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Patient: Doctor, it hurts when I do that. Doctor: Don't do that. Seriously? Either this is intentional (which I doubt) and the participants previously received notification that a deferral election can serve to sever payroll deductions for other benefits and that in such case they would have to make other arrangements to avoid interruption of those other benefits or it is unintentional, in which case the plan sponsor should look to the controlling plan documents to see if there isn't some way to justify them changing the order of withholding, which I can't believe they can't find. If need be, amend the plan. But I find it hard to believe that will be necessary. Here is some language I found in a volume submitter plan: The rules and procedures for allowing Participants to defer and reduce their Compensation under Paragraph xxxx of Article I and this Paragraph xxxx and to decrease (or increase) such reductions and deferrals shall be established by the Committee, in its sole discretion; provided, however, that the Committee shall exercise its discretion in a uniform and nondiscriminatory manner. " If your plan has something similar it should allow the Committee to establish a rule that says: the maximum deferral for any pay period shall be no more than net pay.

Maybe not a PT if the cash balance plan says that it will pay those expenses (e.g., rather than the employer being obligated to pay them). However it is definitely an IRC 401(a)(2) exclusive benefit violation and an ERISA 404 exclusive purpose violation/breach of fiduciary duty.

Happy New Year, and thanks for the wealth of knowledge and experience you all bring to these great message boards.

It would help is you would copy and paste the exact language of the QDRO. There are generally two methods of allocating defined benefit plans. The first is what is known as a "shared interest" allocation where the Alternate Payee receives a share of the Participant's benefit if, as and when the Participant receives it, plus there is normally a survivor annuity benefit payable after the death of the Participant. The other method is the "separate interest" allocation where the Alternate Payee receives a share of the Participant's accrued benefits as of the date of the divorce and will have the option to begin receipt payments even if the Participant is not in payout status, but only if the Participant is over age 50 and eligible to retire. Bottom line, nobody can give you a valid answer without seeing the QDRO. David

"Does this now need to be adjusted on the w2s for the year and included as elective deferrals?" No.

Read your plan document again. Some where the definition of allocation compensation is limited to that limit. It has to be written that way by law.

It's the same as the Match. Earnings in excess of $265k are, essentially, disregarded from the 401k.

To determine whether something is a participant loan that might meet conditions for ERISA's statutory prohibited-transaction exemption: "The existence of a participant loan or participant loan program will be determined upon consideration of all relevant facts and circumstances. Thus, for example, the mere presence of a loan document appearing to satisfy the requirements of section 408(b)(1) will not be dispositive of whether a participant loan exists where the subsequent administration of the loan indicates that the parties to the loan agreement did not intend the loan to be repaid." http://www.ecfr.gov/cgi-bin/text-idx?SID=e3a3147a70d22f29bb42e4675a67fe47&mc=true&node=se29.9.2550_1408b_61&rgn=div8

Once again if the plan administrator has reason to believe the loan isn't going to be paid back the loan can't be issued. The rules are clear the loan has to be issued on terms that are commercially available any commercial bank would only give a loan that is expected to be paid back. Strictly speaking is there a way to do what this person wants to do? Sure if you are willing to play in the grey areas and ignore things like is this a sham termination or a sham loan. But you could very easily get all the right paperwork. Even have a few loan payments be made from this person (The loan would have to not require payroll deduction payments.) and the chances are you won't get caught. But if the question is will I get caught don't bother asking here just do it. If the question is there a risk free way to do this then the answer is "no".