Deductible Limit for 401(k) Plan

[Guest Michael Spaid]

Not everyone who is eligible to defer does. The plan sponsor is not going to make a discretionary profit sharing contribution but will make a match. Is the compensation of those who did not defer and will not share in the match (i.e they get no allocation) considered in computing the 15% of pay limit of 404(a)(3)(A)(I)? This considers beneficiaries of the plan, are eligible employees who do not defer and get no allocation a beneficiary under the plan for this purpose and if so, under what code section, etc?

[lkpittman]

In the case of a 401(k) plan, if the employee is eligible to make an elective contribution, he or she is "benefitting," and is considered a participant, whether or not the employee actually defers. See 1.410(B)-3(a). With respect to eligible compensation for deduction purposes, compensation for all eligible employees is considered, whether or not they are participating. If a terminated employee does not recerive a share of the employer contribution for the year of termination, such employee's comp is not included for deduction purposes. I believe you'll find this under the 404(a) regs.

Hope this helps.

------------------

LKP