pbarrett Posted March 20, 2003 Posted March 20, 2003 Mike, age 72, (non owner) made $13,000 in 2002. He deferred 11,000 plus the $1,000 catch-up contribution. The employer has now decided to make a hefty ps contribution for the 2002 year. Many participants are upset because had they known . . . What is the maximum ps contribution Mike can receive?
Mike Preston Posted March 20, 2003 Posted March 20, 2003 Stange as it may seem, I've seen approved documents that indicate the employer's contribution will be the first source limited to the extent necessary to satisfy 415. I would think that most plans would say the opposite. What does your plan say? If it doesn't say that employer contributions will be the first source limited by Section 415, then it must say that employee contributions will be limited instead. In either event, you follow the plan terms. If you end up limiting employer contributions, I see no provision in 401(a)(4) that gives the employer a free pass. While this doesn't seem to be a problem in the above case since the employee will get at least 2000 on a base of 13000, if the resulting employer contribution will not pass the general test, the only solution is to limit employer contributions in total. For example, if the 72 year old is the only NHCE and any of the HCE's is younger (a pretty good bet) then the maximum allocation to any HCE would be that which would result in an EBAR that is not greater then this employee's EBAR.
pbarrett Posted March 20, 2003 Author Posted March 20, 2003 The plan doc doesn't address the order of contributions so I feel we have to use the deferrals first. I am correct that the 415 limit is 100% of comp (and I don't consider the catch-up) right. So because he deferred $11,000, he could get a $2,000 ps, and $1,000 catch up. The lesser of 100% of comp or $40,000 throws me. This is the first "lower paid" person I've seen hit the limit. Generally, I've seen the HCE with the $40,000 plus $1000 for 2002 (which is still less than 100% of their comp). I just want to make sure, with the catch up, you can go over 100% of comp, right? We may have problems. The employer said there would be no match or ps contribution and there are 3 employees who are really mad. The employer is 62. There are 3 upset employees, who came back from retirement contributed the max (all over 65). The other 6 participant put in nothing and range in age from 21 to 40ish. I'll have to run the test and see how it all looks. Thanks for your insight.
Mike Preston Posted March 20, 2003 Posted March 20, 2003 Originally posted by pbarrett The plan doc doesn't address the order of contributions so I feel we have to use the deferrals first. Check the language dealing with 415 violations and corrections related thereto. The plan has to have something. Yes, you can go over 100% of comp between deferral and ER contributions. If you are only talking about deferral, you can't defer from income you don't have, so you are effectively limited to no more than about 93% of pay (FICA taxes, and any other taxes, make up the difference) if pay is low. I would be somewhat surprised if by the time you read every word in the document you don't find language that will make those people who contributed the maximum "unmad."
Tom Poje Posted March 21, 2003 Posted March 21, 2003 yeh, right Mike. I am currently looking at a plan someone asked me if there was anything they could. They let the kid defer 11,000 with a comp of 11,911.21. Produces a great ADP % of 92.35%. doesn't that % look familiar. Can you say 'refund, boys and girls?'
Mike Preston Posted March 21, 2003 Posted March 21, 2003 Aw, Tom, it is obvious they intended to make it work through a QNEC. Probably not even bottom up. You should at least tell them the number. It will make all your other suggestions look soooooooo good.
Tom Poje Posted March 21, 2003 Posted March 21, 2003 Actually, I thought about using the definition of 414(s) that excludes all deferrals. What is that, about 1200% for the deferral rate?
Mike Preston Posted March 21, 2003 Posted March 21, 2003 1207.19, remember, we round to the second decimal place. ;-)
Tom Poje Posted March 21, 2003 Posted March 21, 2003 ooooh. That makes the QNEC even more. Oh wait. even if I gave 100% of pay I can't pass. ............. on a brighter note..... the CPI - U rate shot way up. DEc=180.9 Jan=181.7 Feb=183.1 So, through Feb I have the comp limit at 204,660 and annual addition limit at 40,932. Looks like those two values will increment for 2004
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