Compensation limit and match

[rlb64]

Plan provides 33% match up to 6% deferrals. Match is contributed monthly and there is no year-end true-up. If the matching contribs exceed the match based on 6% of the comp limit, is the excess forfeited?

[stevena]

isn't the match contribution calculated monthly and therefore based on monthly salary? if there isnt a true up, your match isnt defined by plan year comp, is it?

[rcline46]

6% of $205,000 is $12,300, which is under the limit. If done on a monthly basis, then there is no comp limit (say entire 205,000 if received first month). Deferred $13,000 (max!) which is 6.34%, this example works.

Got an example where the match would exceed 1/3 of $12,300 (4,100)?

[rlb64]

I'm not sure I follow your example:

Pay is $22,222 per month and elects 6% of pay (catch-up eligible). Monthly match is $440. Yearly match is $5,280.

[david rigby]

Methinks there is a problem with either

- interpretation of plan provisions, or

- plan provisions.

[jquazza]

You have to either prorate the 205k for each payroll period or stop matching once participant's comp reaches 205k, otherwise, you will be taking into consideration compensation in excess of 401(a)(17). Most plan docs will be silent on the issue so it will be left at the plan admin interpretation.

[QDROphile]

jquazza: You misinterpret how the 401(a)(17) limits are applied.

[Blinky the 3-eyed Fish]

QDRO, in your opinion what match should be received and what is your solution for achieving that match?

Just to clarify, I know you will say the match is 205,000 * .06 * .33 = $4,059

[rcline46]

Here we go again!

DEFERRALS are not based on the 401(a)(17) limit, testing of deferrals is.

MATCH is based on the 401(a)(17) limit, and computed match must be stopped when the 401(a)(17) pay limit is reached.

[QDROphile]

Sorry be so picky, but I can't venture a specific answer because there is not enough information. We don't know what the plan terms are. I did not even understand the original post to mean the 401(a)(17) limit was the "comp limit" so I did not understand the perceived problem.

401(a) (17) is an amount limit, not a timing limit. The plan design can be so stupid or ignorant that it makes the compensation limit effectively lower than the 401(a)(17) amount.

In general, you look at the formula. If the formula refers to a percentage of compnesation, the percentage cannot be applied to a number larger than the 401(a) (17) amount for the year. In general, you can annualize for purposes of the limit even if the period for the match is less than an year and there is no true up for the year. You do not need to shut down when pay reaches the 401(a)(17) amount during the year, even though some inferior systems are designed that way.

If the match is 33% of deferrals, disregarding a deferral amount in excess of 6% of compesation, then the maximum match for purposes of the 401(a)(17) limit is is 33% of 6% of $205,000 (2004) = $4059. The plan design and the timing of elective deferrals may cause the participant to fail to get the full match, but 401(a)(17) is not the limiting factor.

[rlb64]

The plan terms are as I described. Matching contributions are calculated on a monthly basis using compensation during the month.

Sal describes a special rule for match referring to Treas. Reg. §1.401(a)(17)-1(b)(3)(iii)(B) which basically says the 401(a)(17) compensation limit does not need to be prorated. If so, then why does the compensation limit need to be recognized for the entire year?

[Blinky the 3-eyed Fish]

So that is saying that the compensation for the month is not required to be prorated to 205,000/12. Are you trying to argue that because the match is on a pay period basis 401(a)(17) on an annual basis is disregarded? If so, that is quite a leap you are trying to make from the cite. I couldn't disagree more.

That being said, the match should be 4,059 in total based on what you have written. You just need to figure out how to get there.