maximum contributions w/o being discrimnatory!

[Guest THOMAS TIERNEY]

We have a 401k plan and the employer is looking to increase his profit sharing contribution for 2000; problem is, it is knocking 2 nhce over the limit. I assume if i keep these two employees at the limit it's discriminatory because they get a lower psp contribution rate. Is the solution to use a lower psp contribution percentage for all. I am exceeding the aggregate 25 % limit and the 415 limit. Where can i go online to read more on these limits? The plan has deferrals, match & employer psp contributions.

[Guest Mr. X]

Your document should answer the question as to how to handle 415 limit violations. It probably specifies that the deferrals plus earnings are to be returned.

[Richard Anderson]

The document we use says that the employer will not allocate a contribution to a participant, if that allocation will result in a 415 limit viloation.

The safe harbor rule for having a uniform allocation rate has several exceptions. One exception is that if the lower allocation rate is caused by any plan limit (such as a dollar limit or a percentage limit), the plan does not fail the safe harbor requirement. The 415 limit is an example of this type of plan limit on an allocation.

[MWeddell]

Your plan document should say how 415 excesses are handled. One solution is that it says that you don't make the profit-sharing contribution in the first place to the extent that an individual will exceed 415. A better solution from employees' perspective is to refund elective deferrals.

Having most employees receive 15% profit sharing except for a few NHCEs who due to 415 receive lower amounts is not necessarily discriminatory. You may not even need to perform discrimination testing. See Treas. Reg. 1.401(a)(4)-2(B)(4)(iv).

Helpful links to IRS regulations and other primary materials can be found at http://www.benefitslink.com/articles/usingweb.html