Reduced compensation

[Guest cynthiar]

My document requires me to reduce compensation for allocation purposes by the amount of the deferrals. I have a participant with a salary of 250,000. Do I first reduce the salary to 200,000 or is my starting point 250,000.

[Appleby]

Your starting point would be $200,000 (for 2003 $205,000 for 2004)…IRC Sec. 401(a)(17)… I.R.C. § 404(l)

[Guest DFerrare]

I believe that the 401(a)(17) limit is applied after the compensation is adjusted. If compensation is $250,000 and the deferral is $12,000, the net compensation is $238,000 which is then limited to $200,000 (or $205,000 in 2004) for allocation purposes. See page 3.178 of The ERISA Outline Book (2003 Edition).

David

[Guest cynthiar]

David,

I read the section and think you are correct.

Thanks,

Cynthia