Deferral % or Dollar Amount

[Guest notapensiongeek]

Very basic question on 401(k) deferral elections / salary reduction agreements but never really thought about it until a client just asked.

The basic plan document states that a participant may elect a certain percentage OR dollar amount to be withheld from pay. Can the plan be amended and only allow of having a certain percentage withheld and no longer allowing a specific dollar amount to be withheld each pay period?

Thanks!

[ERISAnut]

Very basic question on 401(k) deferral elections / salary reduction agreements but never really thought about it until a client just asked.

The basic plan document states that a participant may elect a certain percentage OR dollar amount to be withheld from pay. Can the plan be amended and only allow of having a certain percentage withheld and no longer allowing a specific dollar amount to be withheld each pay period?

Thanks!

Of course. The BPD is merely stating you may elect which option you want on the Adoption Agreement (or Salary Reduction Administration agreement if used in lieu of having this option on the Adoption Agreement).

[Guest notapensiongeek]

Thank you!

[J Simmons]

I'm not sure I agree with ERISAnut. The basic plan document, as described in the OP, gives the choice of % or $ amount to the participant. If the adoption agreement does not give the employer the option of just one, % or $, I do not think that employer may effectively deny, through what is presented in the Salary Reduction Agreement, the option the BPD gives to the participants. If the adoption agreement does not allow the employer to specify, then the plan would need to be amended to limit the election to either % or $ or the plan administrator would not be administering the plan as written. If the plan is amended beyond switching options presented to the employer in the adoption agreement, you'd be migrating from a prototype into individually designed.

[ERISAnut]

We're basically saying the same thing. Typically, that language in the BPD would imply that the adoption agreement provides the option. However, the BPD may actually state that those decisions will be address on a separate salary reduction agreement. This has been my experience on certain documents. The point being made is that BPDs are generally written to allow any and all options (for which the decisions will be made on the adoption agreement). This is usually the case.

I agree when you say "IF the adoption agreement". I was merely assuming that either the adoption agreement would say it, or the BPD would include language stating the client will document the decision on a separate salary reduction agreement.

But, we actually agree.