Plan Deferral Limit ?

[pholosofizer]

We have a plan that limits employee deferrals to 20% of annual compensation. The AA also says they may defer 100% of their bonuses, regardless of the above limits (which is in reference to the sponsor electing to use the IRS limit or to limit deferrals to a specified $/%. The BPD doesn't really clarify anything.

I would be under the impression that the 20% limit would supercede the bonus election (for example, someone defers 20% all year and then gets a bonus...could they then defer 100% of it which would put them over 20% of plan compensation?)

I couldn't find any references on EOB or elsewhere.

Thanks!

[Bird]

I would read it as the lesser of 20% of annual comp or 100% of a bonus. Otherwise the 20% has no effective meaning.

(FWIW, my gratuitous remark on this is "Why?" - unless there is some good reason for limiting deferrals to 20%, and I can't think of any after...whatever year deferrals stopped being included in the 25% deduction limit...it's just something to screw up.)

[pholosofizer]

That's our thinking (and I have no idea why the document would be set up this way).

[GMK]

I agree with the "Why?" comments.

Just for my own understanding, if the AA actually says that the option to defer 100% deferral of a bonus is regardless of the other limits, then why can't participants defer 20% of all other compensation and defer 100% of the bonus? Otherwise, would it not say 100% of the bonus, but not to exceed 20% of total compensation (including the bonus)?

[Bird]

I'm sorry, I didn't see the part about "regardless of the above limits" (even though it was right there!) That says what it says, so I guess it does supersede the 20% limit. Makes the whole design issue a little weirder to me.