Limiting 401(k) Salary Deferral Contributions

[AJ North]

Situation: Plan document permits participants to defer up to the maximum permitted by law to the plan, no percent or dollar limits (other than statuatory) hardcoded in plan document.

Problem: Plan Sponsor has limited all participants (HCEs and NHCEs) to only defer up to 15% of compensation.

Timeframe: Plan Sponsor has operated the plan this way; "always".

Question: Do I have as big a corrective contribution situation as I think I have or is there another way to view this situation?

Thanks

[ETA Consulting LLC]

I would say that even though it was operated outside the written terms of the plan, it was not operated in an arbitrary and capricious fashion. This was apparently the result of a previous design many years ago limiting deferrals due to the 415 Limit (and perhaps deductibility rules) from way back. While the document was amended (because it was perhaps a good idea), the employer simply failed to grasp the concept.

I don't think it is earth shattering, but do believe it is a VCP issue; if only to do nothing but request the IRS let sleeping dogs lie.

Good Luck!

[Kevin C]

Were those catch-up eligible limited to 15% or limited to 15% + the catch-up?

[AJ North]

My understanding is that any participant who was catch up eligible was permitted to do a catch up if they hit the 15% limit.

Thanks to all for responding.