25% of Pay Limit

[David]

Do employee salary deferrals to a 401(k) plan count towards the 404(a)(7) (25% of comp) overall deduction limit?

[Alf]

Yes.

[David]

Thanks Alf. So, does that mean that if the employer has a DB plan with a greater than 25% of pay required contribution, there would be $0 allowable employee deferrals?

[This message has been edited by David (edited 03-15-2000).]

[John A]

It means that the 401(k) deferrals would not be deductible to the employer, and might very well be subject to the 10% excise tax for nondeductible contributions. Whether or not the deferrals could be stopped or not allowed would probably depend on the plan document.