25% Cap on Employer Contributions

[pjbaer]

We have a safe harbor enhanced 4% match 401(k) plan. The only two participants are a step-mother and a step-son. The step-mother deferred and received a 4% safe harbor match. The step-son did not defer. The step-son made double in W2 wages compared to the step-mother but both wages are below the integrated level. With that in mind, the step-mother can only get 21% maximum in a profit sharing contribution. Can the step-son also only get 21% or can he receive the entire 25% in a profit sharing contribution? If the plan has a prorata profit sharing then the step son can only get the same proportion in profit sharing as the step-mother?

[Lou S.]

Assuming this is the only plan and the only eligible participants you can make a 25% of pay deductible employer contribution. Further assume PY=FY and pay based on PY.

For simplicity assume mom made 50K deferred $2K and got $2K match, son made $100K no deferral or match.

Eligible pay is $150K, 25% is $37.5K

Company has already contributed $2K employer match so it can make a $35.5K profit sharing contribution.

Since you said document has pro-rata allocation if company made max deductible 35.5/150 = 23.67% of pay.

Son would get 23.6K, mom would get $11.8K (within rounding).