Exceeding Plan Deferral Limit

[Guest philc]

Calendar year/plan year. Deferral limit written into the plan is 1-15%. Employer wanted to take advantage of the EGTRRA change and decided to allow (beginning 4-03) participants to defer the maximum dollar amount allowable (which in many cases exceeded 15%) BUT forgot to tell us until now (post '03). Would a retroactive amendment be acceptable?

[chris]

Did employer actually do an amendment allowing for increase in the deferral limitation? If so, sounds like employer may have technically failed to withhold the deferrals and a correction of some type is in order....??

I read the original post very closely didn't I..??? If the document says deferrals are limited from 1% to 15% then I think those are the limits. Don't see how the participants can defer compensation they've already earned. Also, if participants deferred the full amounts under EGTRRA, but there's no corresponding plan amendment changing the " 1% to 15%" language, then there are excess deferrals that need to be distributed....

[Jed Macy]

It is my understand that the IRS' position is that the plan document must authorize deferrals in advance of them occurring. Thus I suspect that they won't recognize a retroactive amendment.

I recommend a prospective amendment to your plan that leaves the document silent as to the percentages of pay that are permissibly deferred; and just leave it to the plan's Administrative Committee.

Here is the language that I use and for which I have received favorable DLs:

The Administrative Committee (1) shall determine a range of deferral percentages from which Participants may elect, (2) may set lower percentages for Highly Compensated Participants, (3) may prescribe the form on which elections are made, and (4) shall set the conditions related to frequency and advance notice for starting, stopping and changing elections.

[david rigby]

...BUT forgot to tell us..."

Who is us? Perhaps the original post means the employer intended and implemented a change but never told anyone who could/would document it. If so, check to see if there really is documentation, such as minutes of a Borad meeting. Might not be enough, but check anyway.

BTW, are actual deferrals impacted by this "change"?

[Guest philc]

Us is the recordkeeper, document provider. Participants were given info. that they could contribute up to the max. dollar limit. Not certain if a BoD Res. was done. Yes, deferrals were made in 2003 which actually exceeded the 15% limit in the plan.