Which comes first - 401(k) or 125?

[Guest MLH]

An operational question came up from my payroll group that I was unable to answer. Currently, our payroll system calculates 401(k) deferrals, deducts them from gross pay, then deducts Section 125 premiums. Because of the nature of our workforce, this means that employees often fall behind in their premium payments becuase their checks aren't large enough to cover the deduction.

Our payroll group is of the opinion (erroneous, I believe) that changing the order of the deductions will enable them to withhold the entire premium - what they would like to do is to deduct 125 premiums, calculate the 401(k) deferral, and then defer that amount to the extent possible given the remaining wages after the premiums.

My gut is telling me that this is not permissible, however I was not able to find any authority that explicitly addresses this particular question - does anyone know of any resources / authorities that address this issue? Thanks!

[Tom Poje]

I would guess that your election form says

'enter % of comp you wish to defer'

and I would further imagine document defines comp as total comp, not comp net of cafeteria. so what you have been doing sounds correct.

you could actually have the document or election be defined this way (comp - cafeteria), but then you have compensation testing issues which could be discriminatory.

[Guest MLH]

Thanks Tom - that makes perfect sense.