401(k) Plans - Compensation and Limits

[Guest T Cahoon]

Our company was bought out by another company about 2 years ago and for now, we maintain our own payroll/benefit plans. The parent company will be paying our company's senior management team their annual bonuses. After the bonus is to be paid, our company's payroll will be provided the bonus information so that we can add to our database. Our company pays our employees from our own payroll system.

By the time our company receives this bonus information, some of these senior managers will have exceeded the the 401(a)(17) limit of $170,000. Is it permitted that when we run our next weekly payroll cycle, we can deduct for these individual's 401(k) (pre-tax contributions) and Supplemental Savings and Retirement (after-tax contributions) so that they would have the opportunity to contribute up to the 401(a)(17) limit (not exceeding 402(g) and 415© limits as well)? Or would such deductions not be permitted since the 401(a)(17) limit was reached when the bonus was paid? No savings plan deductions were taken from the bonus paychecks so some of these individuals would have missed the opportunity to contribute to their savings plans.

[Alf]

You need to read your plan's document very carefully and make sure you know whether bonuses and other extraordinary compensation are to be included as "compensation" for various purposes under the plan.

If they are, it is improper to pay bonuses without the deductions. It seems like it would still be a technical violation of the plan even if it was made up on the next pay check.