401(a)(17) limit; how absolutely does it direct allocations? Across all steps?

[Guest Enda80]

As you know, the 401(a)(17) limits how much total compensation can be taken into consideration regarding the 404 limit and the deduction for the employer's contribution to the retirement plan. It also limits how much compensation can be taken into consideration when one allocates a contribution to an individual.

So, for example, there exists a 401(a)(17) limit of $220,000. Somebody has compensation of $300,000. So let us say that there is an allocation step where you multiply 5.5% of a person's compensation by his or her total compensation and excess compensation added together. Let us say excess compensation is $300,000 minus the taxable wage base (around $80,000; this is just a hypothetical situation, and I do not feel up to looking up the actual figure). Well, that brings the figure to about $360,000 ($220,000+$140,000 [$220,000-$80,000].

So, in this first step, we are dealing with a figure of $360,000 that exceeds the 401(a)(17) limit of $220,000. Is this allowed? Must all figures entered into any step of an allocation process automatically get reduced to the 401(a)(17) limit (in this case, $220,000)? Can anyone produce guidance regarding this?

[WDIK]

So, in this first step, we are dealing with a figure of $360,000 that exceeds the 401(a)(17) limit of $220,000. Is this allowed? Must all figures entered into any step of an allocation process automatically get reduced to the 401(a)(17) limit (in this case, $220,000)? Can anyone produce guidance regarding this?

401(a)(17) limits the base compensation, not the base compensation plus excess compensation.

[Guest Enda80]

Thank you for the reply. If not inconvenient, do you know of any official reference to support the sentence you wrote?

[WDIK]

401(a)(17) refers only to annual compensation.