Correct Matching Schedule

[Guest JWBrown]

I think that the comp limit (now $170K) must be used for all match computations. I don't think you should ever go over the comp limit for purposes of computing either deferrals to the plan or match on the deferrals.

[Guest TAG]

I have a 401(k) with an employer discretionary match that is not top heavy. The match schedule is:

Deferral Match

1% 2%

2% 4%

3% 5%

4% 6%

5% 6%

6% 6%

HCE makes $300K and his employee deferral sheet states a 4% deferral. Deferral shuts off at $10K (1999). Percentage based on $160K comp limit is 6.25%, but sheet is 4% deferral. Does the guy get the 1.5 times match on $10K (4% deferral rate) or 1.0 times match (6% deferral rate)? Appreciate all comments.

[Guest]

The only exception to the rule of match is a SIMPLE IRA where there is no cap on compensation. Thus an ee deferring $6000 and making 200,000 is not limited to the 3% or 4800 based on a cap of 160,000.

but in all other cases, cap the compensation.

or put another way, if the particular employee made 1,000,000 and deferred 10,000 would you limit his match to 2%?

[Guest TAG]

Thanks for the input Tom. I imagine the §415 limit of $30,000 would kick in. I agree that the comp limit should be used, but my thought was that the deferral sheet was in essence a contract between EE/ER. If EE was actually contributing match on a payroll period basis based on deferral sheet would it be okay to go up to the 415 limit assuming all discriminatory testing was passed. Just a thought.

thanks

[Guest Tim Howard]

One comment - check the Plan Document for the definition of compensation - if it refers to annual comp then the match adj is needed.

[This message has been edited by Tim Howard (edited 03-23-2000).]

[Larry M]

What was/is the intent of the sponsor of the plan? Does the plan document reflect that intent (in its definition of terms as they are applied)? If it does not reflect the intent, then amend the plan.

[John A]

TCAT,

Just to clarify some things, did this employee defer $10,000 by deferring 4% on the first $250,000 of compensation?

Does the document state that if the deferral rate is 4%, the match will be 6%? Or does the document state that if the deferral rate is 4%, the match will be 1.5 times the deferrals?

Does the document allow an employee to select a specific dollar amount for a deferral, or does the document only allow an employee to select a percentage to defer?

Does the document provide for payroll-by-payroll match, or does it specify an annual match?

I'd like to see some numerical answers from others that have responded. It seems like the following are some possible answers:

1) Deferrals had to be capped when the employee reached $160,000. So deferrals would have been $6,400 and match would have been $9,600 (either 6% of $160,000 or 1.5 times $6,400).

2) Deferrals are allowed to continue beyond $160,000 up to the 402(g) limit, so deferrals would be $10,000. Matching contributions would have been 6% of $160,000 or $9,600.

3) Deferrals are allowed to continue beyond $160,000 up to the 402(g) limit, so deferrals would be $10,000. Matching contributions are 1.5 times deferrals, or $15,000.

It appears to me that the answer is 1) if the plan document only allows percentage elections, and 2) if the plan documents allow dollar elections (even thought the participant made a percent election).

Are there other possiblities?

What do others think the correct numerical answer is?