Can an EE pay in deferrals after their last check of the year has been processed?

[Guest Ashlea]

We have a participant who has decided to contribute an extra $9,000 for their EE deferrals for 2004. Following the guidelines, they can contribute that much, but can they just write a check to the Plan? Since the taxes have already been deducted? Or can they just adjust it on their taxes?

Thank you for your help!

[austin3515]

It must be deducted from wages. They cannot write a check to the Plan. OF course, you still have a week to process one more check if it's really that important (assuming the Plan will allow up to a 100% w/holding-don't forget to gross up for SS Taxes)....

[Guest Ashlea]

Couldn't they write a check to the company?

[Harwood]

Just as Austin said: "It must be deducted from wages."

[E as in ERISA]

They are correct. If you don't want to read the law, just read the terms of your plan documents. Do they allow what you are suggesting? They shouldn't. So this would be an operational violation that could disqualify the entire plan. I'm assuming this is an important person in the company who is pressing for this? Tell them that there is risk that the plan will be disqualified and all participants account balances will become immediately taxable. If they're important enouhg, see if they can convince the company that they are worth an extra Christmas bonus of $9,000 + (to any FICA) out of which they can defer the $9,000....

[JanetM]

Or have them return the most recent net pay to the company and then just void that and reprocess so it goes thru payroll.

We did this with year end bonus a few years ago. Payroll forgot to ask exec staff if they wanted to change deferrals for bonus.

[Guest F1fan]

JanetM: I'm note sure that your approach is much better than Ashlea's. Allowing a retroactive deferral election for a payment already issued seems to raise concerns of its own. If the party is a highly compensated employee, it seems even more debatable.

[mbozek]

See if you can fit the additional deferral under reg 1.401(k)-1(b)(4) which permits a contribution allocated for a plan year to be contributed after the end of the year. Making the contribution out of AT funds is dumb as well as not permitted because it is the equivalent of about 13,000 in pre tax wages whereas the 9,000 is pre tax except for fica.

[Alf]

As Nancy would say: "Just say no!"