Anything new and what has been your practice regarding deferrals and m

[John A]

This is a subject that has been discussed a few times before, and I’m wondering if anyone knows of anything new and what people have been doing in practice. If anyone is going to the 2000 EA meeting, could you follow up on this? The previous threads on the topic have pointed to:

The 99 EA Gray Book.

"QUESTION #30

Other DC Issues: Application of Maximum Compensation Limit

In a 401(k) plan, does IRC Section 401(a) (17) preclude the following?

A. Employee A earns $300,000 annually. He enrolls in 401(k) calendar year plan in August, after earning $175,000. He defers $10,000 for the balance of the year.

B. Employee A earns $300,000 annually. He participates in a calendar year 401(k) plan making monthly deferrals of a flat dollar amount of 1/12 of $10,000 in 1998, even though his pay exceeded $160,000 before he was done making elective deferrals.

C. Same as B, but deferrals are a percentage of pay (3.33333%).

RESPONSE

All of the above are acceptable, assuming the plan is not drafted in such a way as to prevent it.

In situation C, for example, a plan provision permitting deferrals expressed as a percentage of compensation but not permitting deferrals expressed as a dollar amount could not accommodate deferrals on pay in excess of $160,000. Where the plan permits deferrals expressed as a dollar amount specified in the employee's salary reduction agreement, the reference to a percentage in the individual agreement is irrelevant."

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Assume a plan document permits deferrals of up to 15% of compensation and does not mention allowing deferrals of specific dollar amounts. Does the response above mean that, for this plan document, the Employee in Situation A may not make deferrals, and the Employee in Situations B and C is limited to $5,333.33 (3.33333% times $160,000)?

Does anyone have a plan document that has a provision allowing deferrals of a specific dollar amount per period? The response seems to indicate that a provision like that in the plan document makes Situations A, B and C o.k., even if the actual election form states a percentage of compensation. If the plan document has a provision like this, does this make it possible for the Employee in Situation A to receive a matching contribution? Would the answer be different depending on whether the match was based on deferrals (50% match, for example), or compensation (50% of the first 6% of pay deferred)?