Elective deferral limits - what authority allows plan to set limits th

[Guest Cutfade]

Most 401(k) plans contain either percentage limitations or per hour, dollar limitations on employee elective deferrals. For example, hourly wage deferrals (in a multiemployer plan setting) may be limited to $1, $2, or $3 per hour. These are set for purposes of administraive convenience but may have the effect of limiting a specific employee's deferrals to less than the 402(g) limit ($10,500). Does anyone know of any authority to set these contribution limits, even if they have this effect?

[QDROphile]

What authority says that plans have to provide for the maximum benefits allowed by law? Every plan stops short of allowing participants every privilege that the law will allow. A plan simply delivers the benefits it chooses in a permissible way. Of course, when you deal with limits or optional provisions, they must meet the qualification standards (nondiscrimination, etc.)

[actuarysmith]

I concur completely with the response above................

[KJohnson]

I agree with the above. Also, the limits are often a "fail safe" to insure that certain plan limits are not exceeded.

I have often seen collective bagaining agreements where apprentices only receive 60% or so of the wages of journeymen, but have full benefits. 401(k)s are often layered over an existing defined contribution plan with set employer contributions. For example, if you had a $3 per hour set employer contribuiton and an apprentice defers $3 per hour that apprentice would have to be receiving $24 per hour(before deferrals) in order not to exceed 415 limits.

Finally, if you have highly compensated employees in your bargaining unit, multiemployer 401(k) plans are not exempt from the ADP "discrimination" test. The complications in running this test on a multiemployer basis has been one of the major roadblocks to 401(k)s in a multiemployer context. The limit may be there to prevent the plan from simply sending this money back at the end of the year.

All that said, since you are in a multiemployer plan, benefits are subject to collective bargaining. Also, administrative policies are set by the Board of Trustees 1/2 of which are probably appointed by you union. I would urge you to approach them about your concerns. If it is an ADP concern, they may be willing to set this limit only for highly compensated employees or if it is a 415 concern they may be willing to set this limit only for apprentices.

[Guest Cutfade]

Thanks for the responses. As QDROphile suggests, everyone knows that the limits set by the Code are just that, limits, but they do not necessarily guarantee that a participant will be able to contribute right up to that limit every time.

I'm dealing with a participant, though, who thinks he ought to be able to get to the limit, no matter what. You and I know that won't happen, and it doesn't need to. However, I am still looking for some authority (case law, preamble to a regulation, etc.) that says this. I just want to put this in front of the participant and be done. Any suggestions?

[QDROphile]

The plan answers all questions about participant rights. Point out in the plan the provisions covering contributions. If (when) that does not work, you turn the tables. The proponent of the benefits that are not provided under the plan needs to show why the benefits are available when the plan says they are not. Let the participant worry about finding authority for the participant's proposition.