nonelective contribution limit - 401(a)(17)

If I have an executive making $500 a year, and he participates in a 403b plan, isn’t the employer nonelective contribution (assume 5% of base) limited to the $340,000 401(a)(17) limit?  In other words, he contributes $23K in employee contributions, plus $7500 catch-up, and the company does a quarterly nonelective of 5%. Currently, they’re contributing 5% of $500,000, but shouldn’t it be 5% of the $340,000 max?

Yes, 5% of $345,000, the 2024 comp limit. The plan document should specify all that.

If the plan provides a nonelective contribution determined more often than yearly, consider also how and when within or regarding a year the plan’s provisions (and an employer’s and a plan administrator’s practical operations) apply a § 401(a)(17) limit.

For example, if one seeks to apply quarter-yearly 2025’s $350,000 limit to that year’s wages of $500,000:

Some might determine the 5% nonelective contributions as $4,375 for each of the four quarter-years [($350,000 / 4) = $87,500 x 5% = $4,375].

Others might determine:

2025q1    $6,250 [$125,000 x 5%]
2025q2    $6,250 [$125,000 x 5%]
2025q3    $5,000 [$100,000 x 5%]
2025q4    $0        [$0 x 5%]
sum        $17,500

(Or if a nonelective contribution is determined monthly, the nonelective contribution might be full for the first eight months, partial for September, and none for the last three months.)

26 C.F.R. § 1.401(a)(17)-1(b)(3)(iii)(B) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(17)-1#p-1.401(a)(17)-1(b)(3)(iii)(B).

I merely describe what some employers do, perhaps unwisely; not what’s correct or incorrect.

And as always, RTFD—Read The Fabulous Document (even if the document is gibberish).

In my experience, a charity’s executive generally prefers not applying the § 401(a)(17) limit until that much compensation has been paid. That’s especially so if one recognizes any possibility that her employment might end, whether by the executive’s doing or the charity’s doing, before the year ends.

This is not advice to anyone.