Contribution Limits

[katie58]

I have a client with a payroll system that stops taking contributions when the maximum allowable comp reaches $245,000.

They have an employee that reaches this limit mid year. Since he is only contributing 5% of pay, he has only contributed $12,250. In realty, he would actually like to save the full $16,500. Can they just over ride their payroll system until he reaches the $16,500 limit?

This is a safe harbor paln.

At testing time will the vendor just consider that he save 6.7 percent of his comp then?

Thanks in advance!

[GMK]

I think this the old What Does the Plan Say about deferral limits?

If the Plan Doc allows deferrals to $16,500, that trumps the payroll system. If the Plan Doc says that deferrals are only allowed from the first $245k of compensation, then the payroll system is correct.

[Bird]

I think if you re-phrase the opening statement as follows then the answer becomes obvious -

I have a client with a flawed payroll system that incorrectly stops taking contributions when the maximum allowable comp that can be used for plan purposes, but that has nothing to do with payroll withholding, reaches $245,000.

If this is a plan that actually does limit deferrals to the first $245K, then I would stand corrected, but I've never actually seen a document that did that.

[katie58]

I think if you re-phrase the opening statement as follows then the answer becomes obvious -

I have a client with a flawed payroll system that incorrectly stops taking contributions when the maximum allowable comp that can be used for plan purposes, but that has nothing to do with payroll withholding, reaches $245,000.

If this is a plan that actually does limit deferrals to the first $245K, then I would stand corrected, but I've never actually seen a document that did that.

I think you said it much better than I did! Thanks for all your help.