Multiple Plans and Plan Year Limits

[Guest Mad_Tony]

I am trying to find the answer to the following scenario:

A company has both a 401(k) and and ESOP with plan years ended 12/31/05 and 6/30/06, respectively. How do I determine the Defined Contribution Plan contribution limit that each particpant must abide by? I am trying to make sure that no participant exceeds his or her contribution limit, but am unsure on what to base my limits on.

Thanks!

[Blinky the 3-eyed Fish]

The limitation years are important. Since most of the time the plan document will state the limitation year is the same as the plan year, I will assume that for the rest of my post.

What you need to do is test both limitation years and total the annual additions that occur in each. First, the testing the 401(k) plan 12/31/05 year-end, you include all of the 401(k) annual additions for 2005 and the ESOP annual additions in 2005 (probably the contribution is deemed credited as of the end of the year, so it's the 6/30/05 contribution). For the 6/30/06 ESOP year-end, count the 6/30/06 ESOP contribution and 401(k) deferrals and employer contributions made for 7/1/2005 - 6/30/2006. This gets a little trickier if there is a match and a nonelective contribution. You need to pay attention to the document as to when it is credited.