Under the new law for 2002, can we have a plan design in which the elective deferral maximum limit is set at 100% of compensation?
Rev. 04/05/02

In theory, yes, but in reality, no. An elective deferral of 100% of compensation is not possible because FICA, FUTA and many state-required payroll withholding items must be subtracted from income before the elective deferrals can be made. In addition, if 100% of compensation were contributed as an elective deferral, the 415 limit (the lesser of 100% of income or $40,000) could be exceeded simply by the allocation of a forfeiture or by the addition of employer contribution. Therefore, an elective deferral limit based on 100% of compensation would not be good plan design.