Frontloading 401(k) Deferrals

[BTH]

In most cases, we see participants wanting to maximize their 401(k) contributions by contributing equal amounts per paycheck through the year. However, are there any issues with Highly Compensated Employees fully frontloading their $16,500 401(k) deferral in the first pay period of the year? I seem to recall the IRS having an issue with this years ago(perhaps during an audit), but haven't seen anything specifically prohibiting it. Thanks!

[QDROphile]

No legal issue, but watch out for how the plan calculates match. The front loaders might not get the related maximum match.

[MARYMM]

In most cases, we see participants wanting to maximize their 401(k) contributions by contributing equal amounts per paycheck through the year. However, are there any issues with Highly Compensated Employees fully frontloading their $16,500 401(k) deferral in the first pay period of the year? I seem to recall the IRS having an issue with this years ago(perhaps during an audit), but haven't seen anything specifically prohibiting it. Thanks!

THe other thing to watch for is any deferral limit the plan might have such as 50% of comp. You could have someone defer the 402(g) max in their 1st paycheck and then leave employment - unexpectedly !

[david rigby]

1. What does the plan say?

2. Whether this is an operational issue or a plan provision, it must be administered in a non-discriminatory manner.

[BTH]

The Plan doesn't appear to have any deferral limits outside of 402(g), so it sounds like it would be acceptable to frontload. Good point on the Match -- better to point that out now to the participant rather than having to tell them the bad news later! Thanks.

[BG5150]

Is the match calculated on a payroll-to-payroll basis or yearly? If yearly, no problems, as long as the deferral does not exceed the amount of the currently available compensation.

[Guest Sieve]

Be careful (or at least aware) -- allowing HCE front-loading isn't always a good idea: if the HCE terminates/dies before year-end, then his/her deferral percentage will raise havoc with the ADP.