Deferrals from bonus question

Plan does not allow for separate election for bonuses.

Participant elected $500/pay period for 401(k).

Bonus is coming this week as a separate check.

Do they take out the $500 from the bonus, too?

No.

But if someone was withholding 5%, you'd take it, right?

The plan defines "compensation", right?

42 minutes ago, BG5150 said:

But if someone was withholding 5%, you'd take it, right?

Yes.

I think Mike Preston gave the best answers already, but I'm open to the idea that it wouldn't be arbitrary and capricious to interpret the plan has requiring the $500 to be taken from the bonus amount too if that's what ends up happening.

1 hour ago, MWeddell said:

I think Mike Preston gave the best answers already, but I'm open to the idea that it wouldn't be arbitrary and capricious to interpret the plan has requiring the $500 to be taken from the bonus amount too if that's what ends up happening.

To quote 37: "But that would be wrong".  We're told the election is $500 PER PAY PERIOD.  How do you get that a bonus check (which is definitely NOT an additional pay period) should have $500 taken out of it?  I agree it's not arbitrary and capricious; it's just plain wrong!  Now, if the employee WANTS to get that extra $500 in, just increase the REGULAR PAY PERIOD amount to $1000 for one pay day.  This is not a complicated solution.

4 hours ago, BG5150 said:

Plan does not allow for separate election for bonuses.

Participant elected $500/pay period for 401(k).

Bonus is coming this week as a separate check.

Do they take out the $500 from the bonus, too?

Does the participant WANT the extra $500 taken out?  Please see my other response immediately above (I think).

The bonus might be viewed as covering the prior year, which is a different pay period than the usual semi-monthly or bi-weekly or weekly base pay covers. 

Again, I don't favor that argument but I wouldn't say that it's just flat out wrong.  If the employer believes it was right to have taken the $500 from the bonus and has done so for past years, then one might be open to that argument.

The ER is asking me whether or not it should be withheld.

The adoption agreement merely states that Elective deferrals must be at least 1% of Compensation and nor more than 90% of Compensation.

The deferral election form says I elected to reduce my salary by X% or $Y and have it contribute this amount as a pre-tax Elective Deferral.

(similar language for Roth)

I told her not to take the deferral b/c it's the same check date, and to me, the same pay period.  But, I told her the match due for the period is based on both the regular and bonus compensations.

1 hour ago, BG5150 said:

The ER is asking me whether or not it should be withheld.

The adoption agreement merely states that Elective deferrals must be at least 1% of Compensation and nor more than 90% of Compensation.

The deferral election form says I elected to reduce my salary by X% or $Y and have it contribute this amount as a pre-tax Elective Deferral.

(similar language for Roth)

I told her not to take the deferral b/c it's the same check date, and to me, the same pay period.  But, I told her the match due for the period is based on both the regular and bonus compensations.

I agree with your recommendation.  Again, have the employer ASK if the employee wants the extra $500 taken out, and if so, INCREASE the deduction for the one payroll by $500 (with the appropriate employee election).  Now there is no issue; revert back to only $500 per payroll after the one check for $1000.