Ability to defer 100% of compensation

[Guest Diane DuFresne]

As participants in a 401(k) plan can defer the maximum percentage up to the IRS limits per the plan document, how would the following be handled? The participant elected to defer 100% of compensation (earning less than $11,000-won't actually be able to defer 100% as FICA and Medicare taxes are applicable). However, that individual is also participating in a cafeteria plan and having premiums to cover health insurance deducted from his paycheck. He may also have Friend of the Court child support payments coming out of his check. Compensation as defined by the document is W-2 compensation with adjustments for 125, 401(k). My question really is : Which comes first? One guess is that the FICA and Medicare comes first, then the court ordered child support payments, then the cafeteria plan comes next with anything remainning taken as a 401(k) deferral. However, this just doesn't "feel" right........

How is everyone else dealing with situations similar to this?

Any thought would be appreciated.

Thanks,

Diane

[QDROphile]

Ask the rocket scientist who drafted the plan document. Most children are taught to clean up their own messes... .

[actuarysmith]

It is for this reason that many practitioners are recommending only allowing for something like 75% of compensation to be deferred - to allow for such complications.

[Archimage]

I practice exactly what actuarysmith said. However, I think it would be possible to state that the plan allows a participant to defer 100% of comp and have a documented interpretation/administrative procedure that states this means 100% of comp after payroll taxes, cafeteria, etc.

[david rigby]

Earlier discussion.

http://benefitslink.com/boards/index.php?showtopic=15011