I don't see the controversy. Both definitions apply. ERISA. IRC. ERISA's Regulations. IRC Regulations. Joint Board regulations. ASOP's. We are all vassals in service to each.
If the plan allows for catch-up contributions and the participant elects 7%, and 7% is within the allowable limits for the participant, can you justify not doing 7%?
Are the instructions/forms clear on the issue when the participant elects what to defer?
If you vendor cannot do what your plan permits, you need a different vendor...
Indirectly this topic was litigated by the EEOC against JC Penney. Head of Household rule. Case decided in favor of JC Penney
http://law.justia.com/cases/federal/district-courts/FSupp/632/871/2260256/