Matching contributions after comp limit

[Guest Phineas]

I understand that if a participant has gone over the compensation limit before the end of the plan year, but has not reached any other limit (402(g), plan limit, 415 or ADP limit), that participant may defer additional amounts up to the lower of the 402(g), plan limit, 415 or ADP limit. Are there any limitations on the match? Or, is it that whenever there's a deferral, there must be a match?

[austin3515]

If the match is calculated based on deferrals and match for the entire plan year, then you should calculate the maximum match based on the annual comp limit.

So if for 2009 the match formula is 100% of 3% then the match should stop once the participant reaches $245,000 x 3% (I don't have a caluclator).

If the match is calced every pay period per the document, then technically, you should be prorating the comp limit for each pay period so the max comp for each weekly pay period would be 245,000 / 52 (no cite for you, probably in the a17 regs). I think practically speaking, most people just apply the same logic as described in the first paragrah in both scenarios.

[Guest Phineas]

Thank you.

[Kevin C]

If the match is calced every pay period per the document, then technically, you should be prorating the comp limit for each pay period so the max comp for each weekly pay period would be 245,000 / 52 (no cite for you, probably in the a17 regs).

There is no requirement to do this, but the plan could provide for it. What does the plan say?

1.401(a)(17)-1(b)(3)(ii)(B) No proration required for participation for less than a full plan year. --Notwithstanding paragraph (b)(3)(iii)(A) of this section, a plan is not treated as using compensation for less than 12 months for a plan year merely because the plan formula provides that the allocation or accrual for each employee is based on compensation for the portion of the plan year during which the employee is a participant in the plan. In addition, no proration is required merely because an employee is covered under a plan for less than a full plan year, provided that allocations or benefit accruals are otherwise determined using compensation for a period of at least 12 months. Finally, notwithstanding paragraph (b)(3)(iii)(A) of this section, no proration is required merely because the amount of elective contributions (within the meaning of §1.401(k)-6), matching contributions (within the meaning of §1.401(m)-5), or employee contributions (within the meaning of §1.401(m)-5) that is contributed for each pay period during a plan year is determined separately using compensation for that pay period.

[fiona1]

Okay. Say I have a plan that matches 100% of deferrals. No other strings attached. Match is made as deferrals are made.

John earns $30,000 a month and defers $1,000 a month. He's going to hit the compensation limit in September.

I think we all agree that John can continue to defer after he reaches the compensation limit. So we'll assume he has deferred $12,000.

But what should John be matched? Should he have $12,000 since that is what the plan matches? Or should his match stop in September when he reaches the compensation limit?

[david rigby]

I think we all agree that John can continue to defer after he reaches the compensation limit. So we'll assume he has deferred $12,000.

But what should John be matched? Should he have $12,000 since that is what the plan matches? Or should his match stop in September when he reaches the compensation limit?

Depends on the plan document itself.

[rcline46]

The match formula in the document would be something like "100% of deferrals." No cap would be specified, so the match and deferrals are independent of pay. Only the 402(g) limit would apply (with catch up if applicable). Hitting the 401(a) (17) limit is not relevant to the contribution.

However, during testing, the (a)(17) limit would apply which increases the effective rate of deferral and match for those making over the a17 limit. THis also means there is a higher liklihood of failing the ACP test if catch up contributions are involved.

THe whole thing changes if there is a cap on the match.

[austin3515]

OK, I know where I saw this.

In the corbel prototype document, where you select the applicable period for calculating the match, it says (and I quote) "The matching contribution formula will be applied on the following basis (and any Compensation or dollar limitation used in determining the match will be based on the applicable period."

So what the heck does that mean, if not what I suggested? I'll submit to Corbel to see what their answer is.

[austin3515]

Crobel's response, if anyone is interested:

That language was only meant to clarify what is probably second nature. If you match on deferrals up to 4% of compensation, you don't want to use annual compensation in applying that quarterly match. Rather, it would be compensation for that quarter. This was not meant to imply how the 401(a)(17) comp limit is applied. The cite given is the only official guidance we have and I agree that pro-ration isn't required.

[masteff]

Let's remember to be careful to not predicate our responses on a specific prototype document provider. It borders on false information if you don't know for certain that the OP is in fact utilizing a certain document.

Try to answer based on facts/circumstances and proper logic and not what might have been memorized from the xyz company.