MD-Benefits Guy

Thanks guys, I think I finally understand. I was thinking that once comp hit 350k for the year, no additional matching was permitted. Seems like that is not correct. Sounds like matching dollars are still permitted after the comp limit is reached so long as the YTD match dollars don't exceed the calculated max for the year.

Paul I: The example that I quoted does not reference a limit on contributions, it specifically calls out that matching can only be based on the first 280,000 of compensation. The example that you highlighted refers to a participants ability (or inability in this example) to contribute beyond the max comp....it does not address matching. The plan in question does not have any language that would restrict a participant from contributing after they reach the compensation max and I do not see language in the plan documents that would specifically address what to do for matching once the max is reached. Again, the language in the example I provided states that matching should only be done up until the max comp limit is reached.

This snippet from an IRS webpage makes it sound like matching contributions are supposed to stop once the limit is reached. 401k Plans deferrals and matching when compensation exceeds the annual limit | Internal Revenue Service

How are plans typically set-up with regards to employee deferrals and matching contributions once someone hits the 401(a)(17) limit? I believe most plans will still allow contributions once the limit has been reached (I've only seen one that stops contributions), but curious to know how matching contributions are handled once the comp limit has been reached. Do plans have an option to match once the 401(a)(17) limit is reached or must they stop matching? If stopping is a requirement, what section of the law/code dictates that it must stop? Also, if matching dollars must stop at the limit, won't a plan with a true-up negate some of the negative impact a high earner might experience. For example, a plan that matches 100% of contributions up to 6%, wouldn't that provide up to $21,000 in matching contributions in catch-up? So maybe the impact would be the timing of when an employee potentially receives the match? Thanks in advance.

I am working with a company that has defined compensation as W-2 wages with "sign on bonuses" as the only exclusion in their plan documents. In practice, the company has W-2 earnings from several sources that are not being considered for 401k deferrals & match: - GTL imputed income (all employee have this) - domestic partner imputed income - moving reimbursements (reported on W-2) - equity related W-2 income - imputed income from taxable fringe benefits - vehicle allowances Looks like whoever set-up the 401k failed to list several items that should be excluded. The plan has been small enough in headcount historically to not require an audit, however, for 2025 this will be considered a large plan and will require an audit for the first time. Curious to know if anyone has experienced this before and what's the best method for correction. The obvious first step is to update the plan design to exclude the items above, but wondering if the company is going to have to calculate missed earnings for each employee on each paycheck (along with other items) to make a voluntary correction. I am envisioning a long painful process just to determine what was supposed to be deferred for every employee. FYI, the 401k is with Fidelity. Any advice is appreciated.

Thanks everyone for the replies. To give a little more context...I just started with a new company and noticed that ownership was highly concentrated (there are 2 individuals that own more that 80% of the organization). I also know that these 2 individuals have significant ownership stakes in a couple of other companies. While I do not have full details of the ownership structure at the other companies, I do know that the +80% level at my company, creates the possibility for a brother-sister control group to exist. When I notified my boss that we might be unknowingly a part of a control group, she wanted to know which benefit plans would need to be pooled together for testing purposes. I told her I wasn't 100% certain, but that it would definitely include 401k and probably the other benefits that required discrimination testing. I also let her know that this was a very complex matter that exceeded my level of expertise and that we really needed to speak with legal and most likely involve an ERISA attorney. I know there are lots of experts lurking in these forums so I figured it was worth posting. As of now, I think the boss is waiting to hear back from legal.

If an employer is a part of a control group, which benefit plans and test are pooled together for testing? I know 401(k) plans would be tested as one...what other benefit plans?

Employee is terminated on 11/1. Group Health benefits terminate at the end of the month (11/30). Employer uses a third-party administrator for COBRA and sends termination information over to COBRA administrator on 11/14. What is the deadline for the third-party administrator to send out the COBRA election notice - 11/29 (14 days from notice) or 12/14 (14 days after benefits termination) or some other date? I believe COBRA rules state that employers have 30 days to provide notice to plan administrator and 14 days for the plan admin to send election notices. Employers only get 44 days to send notices if they send out their own COBRA letters directly, correct? TIA

Can someone please confirm that the 415 limit is per unrelated plan? If someone participated in a plan for the first part of the year and maxed out their contributions at 23,000 (in 2024) and then went to another job with a 401k plan that permitted after tax contributions - with the new plan, would the participant be able to contribute a total of $69,000. Do I have this correct? Can anyone point me to a US Treasury Reg or IRS document that spells out that the 415 limit is per plan and not by participant? Thanks in advance.

To provide some clarity, I am trying to determine which wages may be counted towards the acquiring company's $345,000 compensation limit. There are three distinct periods under consideration: I. 1/1/24 - 3/18/24 Company A (acquired company) operated independently with its own 401k. I am pretty sure that wages paid during this time would not qualify as wages against Company B's (continuing company) $345,000 compensation limit. 3/18/24 - Company B acquires Company A....cash sale, all outstanding shares of Company A are acquired and Company A no longer trades. Board resolution is signed announcing that Company A's 401k is terminating 3/18/24. II. 3/19/24 - 6/30/24 - Employees of Company A continue to be paid under Company A's payroll system (and tax ID) but are not eligible to participate in either Company A's or Company B's 401k plan. At this point Company A and Company B are in the same control group, but given that Company A employees are not able to contribute to Company B's 401k, I'm not sure how or if these wages should/could count against Company B's compensation limit. III. 7/1/24 - 12/31/24 - Employees from Company A become eligible for all Company B benefits, including 401k. These wages without question count towards Company B's compensation limit. So, the question is...should I and/or II be a part of Company B's calculation for compensation limit.

Our company was acquired earlier this year. New company has a 401k plan design that stops employees from contributing once they hit the $345,000 compensation limit (even if they are below the 23,000 contribution limit). While not common, I believe this is permissible. The new company defines Eligible Wages as "base pay, annual bonus, sales bonuses, overtime and shift differentials and merit payments, as applicable." Old company was acquired in March of this year and 401k deferrals continued through the close date in March. From March - June, employees were paid on old payroll system and not eligible to contribute to either 401k plan. Starting in July, employees are being paid on new company payroll and are eligible for new company 401k. The problem - several employees are not able to contribute to the new 401k because they are showing as hitting the $345,000 compensation limit? Not sure how or why earnings that occurred under the old 401k plan and earnings that weren't eligible for any 401k contribution at all, are being considered towards the compensation limit under the new 401k plan....I think this might be an error by the new company. The old 401k plan is being shut down (not merging or being acquired by the new company/plan), and will have its own independent testing and 5500. Under these circumstances, is it proper to have earnings from previous payroll be considered as compensation under the new 401k plan? Anyone experience something similar? Thanks if advance.

Brian, once again, thank you for the informative response. Your contributions to this forum have been very helpful to those of trying to navigate the complex world of benefit regulations. It seems like there might be some slightly different instructions between IRC §125 and Notice 2012-40. - IRC §125(i)(1) says an employee may not elect for any taxable year to have salary reduction contributions in excess of $2,500 - Notice 2012-40 says the employee’s total health FSA salary reduction contributions under all of the cafeteria plans are limited to $2,500 Under most circumstances, there would be no difference between elected and contributed amounts...but in this particular situation, there is. Under 2012-40, could it not be argued that the amount that employee could elect under the new employer plan would be Annual Limit - Contributions made under previous HCFSA?

The company I was working for was acquired back in March. The health and welfare benefit plan runs on a calendar year. Acquiring company is moving all employees to the new company's benefit plan effective 7/1 (also calendar year). We are shutting down all existing benefit plans on 6/30. For HCFSA contribution limits, would we treat these 2 plans as affiliated/same control group plans...meaning that between the 2 plans, participants could not elect more than the annual 2024 annual limit of $3200? How do we treat employees who may have overspent their accounts? (Employee elected $3200, only contributed $1600, but already received $3200 in reimbursements?) Can they make an election with the acquiring company, if so, how much? TIA

Our company was acquired earlier this year. We have been told that the existing benefits will terminate on 6/30 and that employees will be given the option to enroll in the New/Acquiring company's benefits. I am getting several questions from FSA participants wanting to know if they can stop contributing to their FSAs given that the plan is scheduled to terminate on 6/30 (normally the plan year is 1/1-12/31.) Participants are being told that they must incur expenses prior to 6/30 and some are claiming that this isn't fair because they had intended to use the money later in the year and they shouldn't be forced to keep contributing, knowing that the plan will end early. I have never dealt with a situation like this and can't find anything that specifically addresses the situation. Can participants make a mid-year election change because the plan has been altered to end early? TIA

Brian, thank you for confirming - much appreciated.