The 401(a)(17) Contribution Limit and Multiple Employers

[ERISA-Bubs]

We have a 401(k) Plan in which several related (i.e. same controlled group) employers participate.  An employee doesn't receive compensation in excess of the 401(a)(17) limit from any single employer in the Plan, but does have combined compensation in excess of the 401(a)(17) limit based on compensation received from the related employers.

I know the 401(a)(17) limit is not combined (but rather a separate limit for each employer) if we are dealing with a multiemployer or a multiple employer plan (see Treas. Reg. Section 1.401(a)(17)-1(b)(4)). 

Since this participant is receiving combined compensation in excess of the limit from employers in the same controlled group, does that make a difference?  Can we look at compensation from each related employer separately, or do we have to look at combined compensation from all related employers?

Thank you.

[CuseFan]

Related employers are treated as a single employer and you must aggregate compensation from all when applying the limit. You don't calculate a 415 limit separately under each employer or a separate ADP for the employee under each employer, or apply hours of service separately, so same with applying the comp limit.

[ERISA-Bubs]

6 minutes ago, CuseFan said:

Related employers are treated as a single employer and you must aggregate compensation from all when applying the limit. You don't calculate a 415 limit separately under each employer or a separate ADP for the employee under each employer, or apply hours of service separately, so same with applying the comp limit.

Thanks CuseFan.  That was my thought, too, but I ran across something that gave me second thoughts.

Treas. Reg. Section 1.401(a)(17)-1(b)(4) says the limit applies separate with respect to compensation of an employer from each employer maintaining the plan (this is in the contexts of multiemployer/multiple employer).

Treas. Reg. Section 1.415(a)-1(e) says the limit applies in the aggregate with respect to compensation in a plan that is maintained by more than one employer so that compensation to such participant from all employers must be taken into account. Thus, employees that work for more than one employer during a year – only get one 415 limit for a year.

So, the compensation limit and the 415 limit don't work exactly the same.  I just don't have clarity on the controlled group issue.

 

[CuseFan]

On 9/21/2023 at 2:29 PM, ERISA-Bubs said:

(this is in the contexts of multiemployer/multiple employer)

That is the key difference - in these instances you have unrelated employers, so each is viewed separately. With a CG, it's deemed a single employer.

[youngbenefitslawyer]

Changing the facts a bit.  An employee participates in two 401(k) plans within the same plan year.  Each plan is sponsored by a related employer.  Can the compensation limit be applied separately to each plan for purposes of determining matching contributions?  I believe the answer is yes, but want to confirm.

[Lou S.]

Under the code yes, but what does the document say about compensation?