401k max

[John A]

The $10,000 402(g) limit is a dollar limit that is unrelated to salary (or at least not directly related), and is applied to the calendar year. It is really a participant's responsibility to be sure the participant does not go over this limit. As a favor to employees, it is certainly a good idea for an administrator to check with the participant about deferrals made with another company.

[Guest mulrenan]

Does the 10,000 max start at July 1 (for a person who becomes eligible July 1 and no % stated in plan)meaning a half year's salary or does the adminstrator use the annual salary for those employees who worked at the co. but did not become eligible until July 1? Does an administrator need to check if an employee worked elsewhere during the Jan to July 1 to ensure they do not go over the 10,000 max? Thanks

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[Guest mulrenan]

To John A. - Would your answer change if the plan specified no more than 15% of salary subject to the 10,000 max? Would it be 15% of half year salary (for July 1 entrance)or 15% of annual salary? Thanks John.

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[Guest ptpnthr]

The $10,000 limit and the plan's 15% of salary limit are different limits. The $10,000 limit (soon to be $10,500) is a calendar year limit that any participant can put into any 401(k) plan. Thus, if an employee works at employer A and defers $3,000 on January 1, and day 2 goes to employer B and defers $7,001 for the next 364.25 days, that employee has gone over the limit. The plan document will tell you what do to, but it is the employee's problem. The 15% of salary limit is a plan design that is often driven by the limit on a deduction the company can take for 401(k) (and other) contributions. The plan will define "salary" (most likely termed "compensation") and will say whether it includes the employee's salary for the whole plan year (which may or may not be a calendar year) or just for the time after the employee enters the plan.

[This message has been edited by ptpnthr (edited 12-15-1999).]

[Brenda Wren]

Be careful. Watch for language in the document such as "a deferral election may not be made with respect to Compensation which is currently available on or before the date the Participant executed such election". We interpret this to mean that a mid-year entrant CANNOT play "catch-up".

[KIP KRAUS]

I agree with Brinda, and if the plan states 15% of compensation it probably does not include compensation prior to becoming a participant. Therefore,the 15% would apply to the going forward half years salary. Unless the plan document specifically allows for make up contributions, which I'm not sure is even allowable,the employee is stuck with the half year contribution rate. In fact, in order to allow the employee to make the maximum contribution for the entire year you would most likely have to allow him/her to put more than 15% in the plan on a payroll deduction basis, and the plan only allows 15%.