Separate deferral election on bonuses...

[kwalified]

A plan allows participants to defer up to 80%. Additionally it allows them to make a separate election to defer up to 80% on a bonus. If a participant decides to only defer lets say 10% of their bonus, can the plan keep that election in place until the participant wants to change it or does the sponsor need to have them fill out a new election whenever a bonus is issued?

[david rigby]

What does the plan say? Absent any specific instructions in the plan, what precedent has been used? If no precedent, the PA might consider (1) amending the plan, or (2) adopting formal written administrative procedures for this question.

[12AX7]

I'm not aware of guidance that requires a new election when a bonus is paid to the participant. It's sort of the same logic where you would get a new deferral election when a participant gets a raise or works double overtime during a pay period.

The concern seems to stem from a large flucuation in payroll, but I don't see that making a difference.

Having said all this, I do share some of the same concerns especially when a deferral on a bonus may jeopardize matching contributions after that particular payroll date because the deferral limit may been have reached earlier because of the deferral acceleration (payroll basis match). So, I usually recommend to the client to have participants make a new election prior to the payroll date that includes the bonus.

edit: for typo

[BG5150]

The bonus election form from Ft William reads (in part):

[ ] Regular 401(k) Contributions. You are hereby authorized to reduce my bonus that I am to receive on or after __________, 2012 by ____% or $_____________ for contribution on a pre-tax basis to the ABCD Company 401(k) Profit Sharing Plan.

Note that the year is in there.

I think it could be implied to be just for the 2012 year. However, it could be construed to mean everything after the dates entered.

You may want to adjust your forms to say they are for a specific year only. Or even for a specific bonus. Just to avoid any confusion.

[kwalified]

The bonus election form from Ft William reads (in part):

[ ] Regular 401(k) Contributions. You are hereby authorized to reduce my bonus that I am to receive on or after __________, 2012 by ____% or $_____________ for contribution on a pre-tax basis to the ABCD Company 401(k) Profit Sharing Plan.

Note that the year is in there.

I think it could be implied to be just for the 2012 year. However, it could be construed to mean everything after the dates entered.

You may want to adjust your forms to say they are for a specific year only. Or even for a specific bonus. Just to avoid any confusion.

BG5150 under what part of FT. William is that form? I am not able to locate it. Is it under their "Documents" section? If so, we use Relius so that may be why I can not find it.

[BG5150]

Yeah. Plan Documents.

Doesn't Relius have a separate bonus election form?

[masteff]

Absent language in the plan or election to make it "this time only", then my opinion is it carries over until the participant actively changes it.

If you do expire the election then you should fully communicate to participants that they MUST make a new election if they want to defer from their bonus. Your risk is the person who complains later that they didn't understand and demand you fix their bonus deferral or they'll have a hissy fit to a Senior VP. (Not that I've ever had to explain plan or IRS rules to a Sr VP before.)