Employee Nonqualified Deferral Election

[rocknrolls2]

Company X maintains a nonqualified deferred compensation plan permitting certain employees to defer all or part of their compensation with a separate election permitting the deferral of the employee's bonus payment which is made in early March. Assume that Employee L is elitgible to participate in the nonqualified deferred compensation plan and that s/he elects to defer 0% on his/her regular compensation and 100% on his/her annual bonus, and that the election was made in compliance with Code Section 409A. Assuming that L has exceeded the Taxable Wage Base before the bonus is paid and that his/her gross bonus is equal to $100,000, $98,550 is contributed to the nonqualified deferred compensation plan and $1,450 is withheld as FICA tax. Can the amount withteld as FICA tax be considered a 401(k) contribution and require the employer to make a matching contribution (to the extent that the deemed 401(k) contributions does not exceed the plan's matching contribution formula)?

[QDROphile]

You are way too many steps ahead of me, so back up.

The $98,550 is not included in gross income for income tax purposes. The $1450 is gross income, but is obviously not avaible to pay the individual or to charge for contribution to the plan. Most 401(k) plans use some variation of gross income as a base for measuring.

To start, the plan could consider the $1450 as part of the available base for deferrals, so if the plan limited the employee's deferrals to x% of compensation, the employee could elect to defer an additiional x% of $1450. An increase in deferral could increase the match as long as the other deferrals had not caused the match to hit the maximum. The plan could also consider the additional $1450 as part of compensation in the match formula, so the maximum match could be greater whether or not the employee defers more based on the the $1450.

I do not see how the $1450 itself could be a contribution. Any deferral based on the $1450 would have to come from other dollars. You cannot just call some amount a contribution. Real dollars have to be delivered to the plan/trust.

[Guest mjb]

first $97,400 of wages is withheld at fica/medicare tax rate of 7.65%. Excess amounts are subject to 1.45% medicare tax. $1450 is withheld by employer and paid to IRS but is is still reported as part of income paid to employee e.g. $100,000 bonus. $1450 is included as part of compensation paid to employee.

[John Feldt ERPA CPC QPA]

mjb means the first $97,500