Deferring on Commissions

[ratherbereading]

I have a plan that includes overtime, bonuses and commissions in compensation. The document specifies participants may defer up to 100% if their bonuses. It does not mention commissions. A client gave a participant a commission check and withheld 401k deferrals and matched it. Is this okay to do? The document does not address this.

[QDROphile]

The plan must be operated in accordance with its terms. The terms have to be carefully considered, and you may have to distinguish definitions of compensation that apply for compliance purposes with defintions that apply for admiistrative purposes, such as which sources of compensation may be charged with the deferral. If the terms exclude commissions (directly or by elimination), then no deferrals can be charged to commissions. If the plan terms are not very clear, a reasonable interpretation might apply that would include comissions in the source for deferrals even if the term "commission" is not used, but be sure that the interpretation is uniformly applied. If other commission payments for the participant or other participants have not been charged, then you have the same problem, other side of the coin.

[ratherbereading]

The plan does not exclude commissions for any definition of compensation. This is the first time they have let someone defer on their commissions. Do I have to have it reversed for this participant because no other participants were offered this?

[jpod]

What is the context of the provision that specifically addresses deferrals out of bonuses? It doesn't make sense, unless it was simply a drafting error (e.g., copying an old document and using it to create a new plan whose terms didn't line up perfectly).

[QDROphile]

The detailed analysis required to evaluate the situation and to determine the appropriate action, is beyond the scope of this forum, or at least beyond my limits.

[ratherbereading]

The document specifically reads that participants can amend their deferral election up to 100% for any bonus.

[ETA Consulting LLC]

Many plans are written to include a provision to allow a separate election for bonuses, which are typically paid at slower intervals (i.e. quarterly, semi-annually, or annually). Operationally, other amounts paid would fall under the general election that participants make at each payroll.

So, at the end of the day, your question is not a legal one; but a document question. Out of the potentially unlimited possibilities of the document with respect to what Compensation is eligible for deferral, how often deferral elections may be made, and whether a separate deferral election is made on bonuses, the challenge for you becomes to read the document language and flowchart the operation.

From the way it sounds (without having the document to read), it appears as if the document merely provides for a separate election for deferrals (which may be up to 100% despite the deferral limit on other deferrals; which would be odd).

Good Luck!

[rcline46]

Why are commissions being confused with bonuses? I think the bigger problem is that deferrals have not been taken in the past from commissions!