Deferrals when you hit compensation limit

[52626]

The client's last payroll, a participant reached the $265,000 compensation limit. However, he did not reach $18,000. As of the last payroll, the participant deferred $14,500 and hit $265,000 in comp.

They do payroll in house and believe that since he has not reached his deferral limit for 2015 deferrals can continue, however, he will not receive any match on the deferrals since he is at $265,000

Question, - I realize the $18,000 is an individual limit and the $265,000 is a plan limit, But if the participant has reached is compensation limit, can deferrals be withheld from his pay??

My thought was the participant is out of luck and can only defer $14,500 for 2016. But I am questioning my thinking.

Thoughts

[Lou S.]

I believe this has come up a few times if you do a search. General consensus was that it was a definition of compensation on the plan documents and MOST documents are drafted to allow continued deferrals until the participant hits the 402(g) limit even if they have passed the 401(a)(17) comp limit.

[QDROphile]

1. What does the plan say?

2. Rethink your comment about the match and see #1.

3. Are you new to this business? The interplay between the compensation limit and the deferral limit was mildly interesting for a while, but that was years ago.

[Tom Poje]

while it is possible to draft a document to stop things once someone has reached the comp limit that would be unusual, at least in my opinion.

The preamble to the final 415 regulations states that:

As noted above, the final regulations provide that a plan cannot take into account compensation in excess of the section 401(a)(17) limit. In addition, the final regulations provide that elective deferrals can only be made from compensation as defined in section 415©(3). However, in applying these two rules, a plan is not required to determine a participant's compensation on the basis of the earliest payments of compensation during a year.

Issue 2012-1 March 20, 2012 of the IRS Employee Plan News offers the same advice:
"We're Glad You Asked #2"
We have a 401(k) plan and some employees’ compensation will exceed the annual compensation limit this year. Should we stop their salary deferrals when their compensation reaches the annual compensation limit? How do we calculate the employee’s matching contribution?
Unless your plan terms provide otherwise, the salary (elective) deferral limit is applied uniformly to the compensation that the employee receives throughout the year.