can employer limit my 401(k) elective deferral

[Moe Howard]

Employer has established a 401(k) plan. Employer tells all participants that they can only defer 12%, and that he will match no more than 5%.

An employee gross salary is $50,000 per year. He wants to defer 24% ...( $50,000 x24% = $12,000). But employer tells him that the plan document/ adoption agreement says that no more than 12% can be deferred.

Employee thinks that the new tax law (egtrra) allows him to defer up to 100% per year, as long as he defers no more than $12,000.

Who is correct ? (The employer or the employee).

[Blinky the 3-eyed Fish]

The employer is correct as long as the plan document is in accordance with what he is saying. A plan can limit deferrals to any level. The EGTRRA changes simply represent the maximum allowable amount that can be deferred.

[RCK]

Blinky the 3-eyed fish is of course right.

It seems to me that the logical of the employee's position is that he should be allowed to defer $12,000 even if the employer did not offer a 401(k) plan--clearly a non-sensical result.

RCK