415e

[Guest billy bong]

we were advised that the repeal of 415e would allow the following:

1. receive the maximum 415 limit in a 401k plan (i.e. 35k for 2001)

2. the maximum benefit allowable in a db plan ($135000)

is this correct? i was under the impression that the repeal was re: the 1.0 calc only but you still had the issue of either the 25% of comp limit or the full db limit, depending on which plan you fund.

we are interested in setting up a 401k plan in addition to our db since it is our understanding the deferrals will not count towards the deductible limit, thus, deferrals will be okay, as long as we don't fund the er portion (since we intend to fully fund the db)

were we advised correctly on the max 35k due to the repeal of 415e?

bb

[Guest Richard Scheer]

You are correct in stating that the maximum DC and DB benefits can be funded now that 415(e) has been repealed.

However, the maximum deduction limits under 404 still remain.

----- 25% of eligible compensation or the DB minimum funding requirement if larger.

Under the new EGTRRA rules, 401(k) contributions will not count towards the 25% limit. Only Employer contributions will count.

[MGB]

You state that the DB will still be funded. Assuming that is 25% of compensation or more, no employer money could go to the 401(k) except elective deferrals.

In this case, you cannot get $35,000 in the 401(k); instead the employee must elect to defer and that election is limited to $10,500 (in 2001). With it being this late in the year, even that would be difficult to do. For 2002, the maximum deferral will be $11,000 plus $1,000 for those 50 and over. Even these amounts may be substantially less if any of the nonhighly compensated employees do not defer large percentages because of the ADP test.

The $35,000 refers to the maximum annual addition inclusive of employee deferrals and employer contributions. But, if you are using up all of the employer available contributions in the DB plan, you only have the elective deferrals that can go into the 401(k).

[david rigby]

Don't forget careful plan drafting.

For example, most plans will include statements that require contributions only if it is deductible. It might be contrary to the goal of the plan sponsor to be required to make a contribution (by the terms of the plan) but not be able to deduct it (by the terms of the Internal Revenue Code).