Excedding compensation limit

[Guest ars]

Plan has four HCE's making 1999 contributions in excess of $160,000 limit. Can this be corrected by doing refunds in the current year?

[Disco Stu]

$160,000 is the maximum amount that can be considered as compensation for the purposes of a pension plan. There are different limits for contributions that are made to plans.

The two simplest limits are the limit on elective deferrals and the annual additions limit.

For 1999 the elective deferral limit is $10,000. This limits the amount of salary that an individual can defer into a 401(k) arrangement.

The annual additions limit is the lesser of $30,000 or 25% of compensation. This limit applies to all contributions made to plans on the behalf of an individual participant.

If you could be more clear about what types of contributions and what limits are in question, we will be able to offer more meaningful advice regarding any needed corrections.

[Guest ars]

Thanks, the plan is a 401(k) plan in which the HCE's are continuing to make deferral even though there compensation has excedded the 160,000 limit. Hopefully this provides more clartification.

[John A]

You still need more clarification. It is possible you do not yet have a problem. For example, let's say the HCE was defering 5% of salary so when he or she reached $160,000 in compensation, the deferrals were $8,000. The HCE is still under the $10,000 limit, so deferrals can continue on further compensation, provided the 25% of compensation, the $30,000, and/or any limit set by the plan document has not been exceeded. On the other hand, if the plan document limited deferrals to 5% of compensation and deferrals continued, then there would be a problem. So, please clarify what the problem is: has a plan document limit been exceeded, has the $10,000 402(g) limit been exceeded, has the 25% of compensation or $30,000 limit been exceeded? An HCE is not required to stop deferrals solely because the HCE's compensation has exceeded $160,000 for the year. Anyone else agree of disagree?

[Disco Stu]

I am in agreement. There have been more than a few threads on these boards regarding salary deferrals after passing the $160,000 comp threshhold.

I may have stopped reading them after the 100th opinion on the subject, but I believe the consensus (as well as my opinion) was in keeping with your assertion.

[Guest ars]

The plan allows for deferrals up to 15% of compensation. The HCE in question has not exceeded this limit nor the $10K limit. His comp for 1999 is about $250K with contributions around 5K. Thus, it is my understanding that no limits have been exceeded, thanks.