Catch-up Contributions; payroll vendor caps the participant at the 402(g) limit first and then in the NEXT payroll cycle will begin catch-up contributions

[DTH]

I have a plan that allows for catch-up contributions for participants age 50 or older up to the maximum allowed by law ($14,000 for 2003). The payroll vendor caps the participant at the 402(g) limit first ($12,000 for 2003) and then in the NEXT payroll cycle will begin catch-up contributions. This may be okay for a participant who reaches the 402(g) limit early in the year since s/he will have time to contribute the maximum allowed by the end of the year. For participant who reaches the 402(g) limit in December, this could pose a problem.

Example: Participant elects to defer 25% of pay. The individual makes $3,000 gross pay per pay period and his/her deferral is $750. In the November 30 pay check the participantl reaches the $12,000 402(g) limit. The amount deferred in the November paycheck was $200 ($550 not deferred because the payroll system cut off at $12,000). Payroll will defer $750 in the December 15 and December 31 paychecks. Due to this method the participant will only defer $13,500 for the year. If payroll had not cut off the deferrals (i.e., the $550) in November the participant would have deferred $14,000.

I assume that since a participant has an elective deferral agreement in place, the payroll vender must defer the percentage elected. I assume this would be considered an operational defect unless payroll is adjusted in December.

If this payroll vender method of treating deferrals in disclosed so participants have time to adjust their elective deferral election percentages, would it still be considered an operational defect?

How do other payroll venders treat catch-up contributions when the participant reaches the 402(g) limit.

Thanks for your input.

[DTH]

I didn't want to re-post this .. but bring it to anyone's attention that has experience working with payroll venders on this issue. The payroll vender I am dealing with says all payroll venders are treating cathc-up contribution this way.

Helppppppp. I'm running out of time to get the make up deferral deducted before the end of the year. Thanks.

[Mike Preston]

I don't give a fig as to what the payroll vendor says. You know the plan is not being operated according to its terms, so tell the vendor to get it right, even if it has to manually override the system. Call them. Now.

[david rigby]

Amen.