401(a)17 and Matching contributions.

[Guest marie kelly]

Facts: 401(k) Plan that allows participants to defer up to 15% of Compensation. Employer Match on elecevie deferrals up to 50% of the participants elective deferrals. The Employer shall not match amounts provided above in excess of 4% of the Participants Compensation.

Assumptions: The participant defers 4% of comp into the plan each pay period and has compensation for the plan year in excess of $170,000.00. The employer makes matching contribution on a per payroll basis. The employee maxes out on deferrals at $10,500 (402(g) limit). The employer gives match equal to 50% of deferrals up to 4% of comp each pay period.

Question: If the participant compensation for the plan year exceeds $170,000 and he/she hits $10,500, what is the maximun match amount? 2% of $170,000 which is $3400 or $5250 which is 50% of 10,500?

[Disco Stu]

$3,400

[Guest marie kelly]

why?

[PMC]

If compensation for plan purposes is limited to $170k and the participant is putting in 4% of compensation each pay period, how do they get to $10,500?

[Disco Stu]

Only the first $6,800 of the participant's salary deferrals may be matched based on the 4% limitation. A 50% match on those deferrals is $3,400.

The issue of salary deferrals after reaching the comp limit has been discussed ad nauseum on these boards. I would suggest that if anyone has questions in that area, they use the search engine and read some of the previous discussions.

[Guest Howard Heller]

Philip: The participant elects to defer 4% each pay period. The participant can defer on more than the first $170,000 earned, so long as these deferrals do not exceed the plan limit (the lesser of the 402(g) limit or 15% of Compensation).

Disco Stu: Like the name. At first you would think this question to be a slam-dunk . . . 2% of compensation, limited by 401(a)(17), is $3,400. However, don't you think there is an arguement that the participant can be matched up to $5,250, because the match formula isn't limited by PLAN YEAR compensation? The match formula provides that the Employer will match 50% of DEFERRALS that do not exceed 4% of compensation EACH PAY PERIOD. All discussions relating to the 401(a)(17) limit have been focused on whether or not the DEFERRALS have exceeded the limit, then whether or not there is an attributable match. This is a bit different. Thanks for humoring me.

[Medusa]

I disagree with Howard Heller's post. The regulations under Section 401(a)(17) regs require that "a plan may not base allocations, in the case of a defined contribution plan...on compensation in excess of the annual compensation limit." While I normally prefer to stop at the primary reference source, I did check the ERISA Outline book which clearly states that the match must be limited to $3,400 in this case.