401(a)(17) and match per pay period

[KJohnson]

401(a)(17) applies on limitations to matching contributions based on a percentage of pay. Howe does this work administratively when you do a pay period by pay period match (say 100% of the first 3% of compensation deferred) based on pay period compensation. Pro-rate the limit by pay period? Just stop the match but continue the deferral after someone hits the 401(a)(17) limit for the year?

[Kevin C]

What does the document say? It can be done either way. 1.401(a)(17)-1(b)(3)(iii)(B).

[Bird]

Pro-rate the limit by pay period? Just stop the match but continue the deferral after someone hits the 401(a)(17) limit for the year?

Neither, probably. The document may provide specifics on this, but more likely (IMO) it will just say what the comp limit for the year is.

Let's say someone is making $490,000, 2X the current comp limit, and they are deferring 1.5% of that, so they get the 3% match on eligible comp. I'm not in the payroll business, but I would just match all the way through. At the end of the year, deferrals will be $7,350, 3% of $245,000, and the match is also $7,350 and will have been deposited in the proper amount.

If that same person is deferring 2%, then someone should be able to figure out when they have $7,350 in matching contributions and stop them at that point.

[KJohnson]

Thanks all, I had looked at the 401(a)(17) regulations and it said you don't have to pro-rate but didn't say you couldn't and also didn't say what you should do. Document was silent. I ultimately came to the same conclusion as Bird and didn't go with either of my suggestions--Just figure out what the limit would be on an annual basis as a dollar amount. Make the full amount of match for each pay period and then just cut off the match when you reached the $ limit. ($7,350 in my hypo).

[Kevin C]

Bird's suggestion is to true-up the match calculation. Is the same thing being done with the NHCE match?

I'm also curious about how you would handle it if this person making $490,000/12 = $40,833 per month deferred $5,000 a month. He would hit $16,500 in deferrals at $163K of comp.

This situation highlights one of the advantages of using a true-up on the match calculation.

[KJohnson]

I don't think it is a true up. It's just stopping deferrals when the payroll period match would otherwise get you over the limit on anannual basis. Indeed on a payroll match the document specifically says not true up will be made.

I think in your hypothetical the HCE would not be able to get the full match. On the 100% of the first three % of comp deferred per payroll he woudl get $1,225 per month in match for four months and then the match woudl stop because there are no more pay period deferrals to match.

[Guest jims]

When matching each period with no true up, the HCE should determine the number of pay periods needed to reach the compensation limit. Then choose a level contribution rate over these same periods to get to maximum deferrals. This will allow them to receive the maximum match.