Minimum Deferral Contribution

[Guest saotampa]

We use the Corbel NS 401(k) document and have a client that wants the deferral contribution limit to be from 3% to 98%. Can we put a limit of 3% as the minimum instead of 1% (plan is not being set up for Auto Enrollment). I don't see anything in the document limiting it, but I want to make sure we can do it by law. Thank you.

[Jim Chad]

I can't think of any obstacles in laws or regulations. But a practical problem may be FICA and Medicare taxes. Is the employer an exempt organization, like a church?

We usually recommend 90% as a maximum because it is easier to work with than 92.35%

[Jim Chad]

I see that I did not address your main question. Which is can you raise the minimum deferral from 1% to 3%?

I can't remember where, but I thought I read that any minimum over 10$ or 1% could be a problem. Does anyone else remember anything like this?

[JanetM]

I don't know of mandated minimum. I think that your circumstances would be the deciding factor. Will you have problem with top heavy? BRF? ADP?

Small plan with only a few NHCEs could end up with the HCE deferral at very low level.

[masteff]

One additional point of information that might be helpful is why 3% specifically.... such as is it the amount that gets full match?

I previously worked w/ a very large plan that used 3% as a minimum for pre-tax contributions; 3% was the amount which resulted in full match. So I can state that under that fact and circumstance, the IRS and DOL had no problem w/ it.

[Guest saotampa]

Thanks for the responses. I don't know specifics of this client and I'm waiting to hear from the broker as to why they are limiting deferrals anyway. They have over 100 employees and I had to do BRF testing because they were interested in a step match formula based on years of service. Match is discretionary though most projections I ran for them had a match % with a limit up to 3% of comp.