Employee bonus paid entirely to plan - is this ok?

[doombuggy]

a client has called me asking if they can contribute employee bonuses that they are going to be giving 100% to the plan. I was thinking that this is not allowed. Am I correct?

The adoption agreement has a question that says : May partiicpants make a special salary deferral election with respect to bonuses? No.

The plan only allows for deferrals up to 25%, so if this employer wants put the bonuses in the plan, he can only do so according to the percentage that the employee has elected. If participant/employee A has elected to defer 10%, than only 10% of his bonus should go in there. The plan has match, so i assume that the bonus should be matched as well (up to the limit).

Am I on the right track with this line of thinking? Thanks fo ryour help!

[WDIK]

I think you are on the right track, as you must follow the terms of the plan document.

[Guest svatty]

you could amend the plan to permit special deferrals from bonuses and allow the employees to make that election OR you could amend the plan (if it isn't already provided) to authorize profit sharing contributions and "award" the "bonuses" as a profit sharing contribution provided the amount of such contribution satisfies the applicable plan limitations / allocation restrictions etc...

[Earl]

If the employer is deciding an amount to contribute to the plan it doesn't sound like a deferral issue. Sounds like a non-elective rather than elective contribution.

I would say the problem lies with how the allocation of the Non-Elective contribution will be done. Sounds like you need a lot of Allocation Groups in a Cross Tested design.