Deferrals equal 100% of pay

If an employee defers 100% of her pay in a Safe Harbor Match plan, does she have to return a portion of her deferrals to ensure she receives the match or does she not get her match for the year due to the 415 limit?

Usually you can't actually defer 100% of pay, since medicare and social security tax have to be withheld. Medicare is 1.45% and social security is 6.2% so the max she could actually defer would be about 92%. That should leave plenty of room for a 4% safe harbor match.

That said, the plan document should specify how 415 violations are corrected.

Is the employee catch-up eligible? if so you might be able to recharaterize the excess as cacthup if they haven't used the full catchup limit. If not, as CB Z points out the document should address the 415 correction. I believe the most common method is refunding the employee deferrals and issuing a 1099-R with code E.

17 hours ago, C. B. Zeller said:

That said, the plan document should specify how 415 violations are corrected.

Almost every plan document I have seen specifies you distribute elective before match.

For an employee subject to FICA taxes, how likely is it that elective deferrals (without an age 50 catch-up) alone could use up a § 415(c) 100% of compensation limit?

Example:  Martha’s salary is $19,500, and she makes an elective deferral of $19,500.  This is feasible because Martha’s employer pays all FICA taxes with no wage withholding for the employee’s portions of the FICA taxes.

According to the IRS, Martha’s wages is, at least for W-2 reporting, $21,115.32.

 See on page 22 “Employee’s Portion of Taxes Paid by Employer”.

Does that measure of compensation fit within 26 C.F.R.§ 1.415(c)-2?

https://www.ecfr.gov/cgi-bin/text-idx?SID=fba8f2934bd2449a6ac33a375dd44f91&mc=true&node=se26.7.1_1415_2c_3_62&rgn=div8

If so, isn’t the $19,500 elective deferral only 92.35% of $21,115.32?

Does this leave $1,615.32 for other annual additions?

I thought 415 corrections were under EPCRS, not the plan doc.

2 hours ago, BG5150 said:

I thought 415 corrections were under EPCRS, not the plan doc.

They definitely are. But plans either still provide ordering rule or maybe I'm just remembering how they used to read before the correction was moved to EPCRS. If low comp/high deferrers are routinely having 415 issues in a K plan because of generous employer contributions, you probably would at least want to have a written policy describing the correction hierarchy, so that you could follow it consistently.

I want to take a second shot at answering the original post. Section 4.04 of Rev. Proc. 2019-50 states:

A plan that provides for elective deferrals and nonelective employer contributions that are not matching contributions is not treated as failing to have established practices and procedures to prevent the occurrence of a § 415(c) violation in the case of a plan under which excess annual additions under § 415(c) are regularly corrected by return of elective deferrals to the affected employee within 9½ months after the end of the plan’s limitation year. (Emphasis supplied.)

So clearly if you have elective deferral and nonelective, you can distribute elective deferral to correct the 415(c) violation. The above quote raises a question regarding matching, however. If you have a situation where every bit of the individual's elective deferral is matched, then obviously distributing some of the elective deferral will also result in a reduction of match. But where only a portion of an individual's deferrals were matched, you would hope that the IRS would be OK with distributing only deferrals. I didn't see anything addressing that directly in 2019-50. Maybe IRS is suggesting that in that situation you should stop matching when 415 would be exceeded? Seems unrealistic.