Comp limit used for deferral contributions

[Guest 2341mid]

Seems like this time of year, we get a handful of employees who are angry that their deferrals have been stopped after they have reached the $200k comp limit. Ususally, they have been deferring 1 or 2% throughout the year, and are stopped after $2000 or $4000 in deferrals. In those cases it is clear they are out of luck. My question is, does the comp limitation in regard to employee deferrals apply to compensation that has not had deferrals made on it? For example, an employee on June 30 2003 has $200k of plan compensation, but has deferred $0 year to date. Can that employee begin deferring 6% on her next $200,000 in order to get her $12,000 deferred by year end?

[mbozek]

I have always thought that the limit applies to the amount of the ees comp that can be used to determine contributions or benefits, but the timing of the comp used is irrevalent. Thus an ee can make contributions in Dec up to the salary reduction max even though the ee reached the 200k limit as of June 30. The problem is that many plans ar poorly worded and/or the tpa firm has a program that stops contributions after the 200k salary limit is reached.

[WDIK]

Good Thread!

[Brian Gallagher]

No one said it had to be the FIRST $200,000 of comp. People can put in up to the 402(g) limit (assuming ADP passes).

[MWeddell]

WDIK points us to one thread but there have been a lot of them over the years on this topic.

My own opinion is that assuming that the NHCEs in the plan are allowed to contribute at least 6% in a calendar year plan ($12.000 / $200,000) (or 12% for a non-calendar year plan), then you needn't worry about the $200,000 limit at all because the 402(g) limit is more restrictive so that even after the fact when one considers only $200,000 of compensation, no HCE has a higher available rate of deferrals than was available to the NHCEs. This is assuming that the plan document is properly drafted.

[QDROphile]

Let me put it bluntly. Anyone who writes a plan to provide for contributions to be stopped at the time during the year the employee has reached pay of $200,000 or anyone responsible for administering a plan that stops contributions at the time the 200,000th dollar is earned should be fired. There is just no excuse for this fallacy to be floating around any more.

You SHOULD have unhappy employees if they have been victimized by this incompetence, unconsciousness, indifference, pure stupidity, or whatever else is at the source of being screwed by such faulty plan design or administration.

[Brian Gallagher]

tell us how you really feel QDROphile!

[david rigby]

Ditto. To the orginal post, if you have some doubt, please refer to the thread referenced by WDIK, and then use the Search feature to find several discussion threads that say the same thing: bad plan drafting and/or bad plan administration.

Since the year is not over yet, there may be time to fix it.