Catch-up Contributions
Rev. 11/20/03, E-mail Alert 2003-22; Updated 03/14/11, E-mail Alert 2011-4

Plan Deferral Limit Set by Plan Document
The Final Regulations on catch-up contributions state that when a plan limit is set for elective deferrals, the limit must be contained in the terms of the plan. The IRS has clarified that the plan document may describe a procedure for setting the plan elective deferral limit without the need to "hard code" an exact percentage or dollar limit.

An example of this type of document provision is the deferral limit in section 4.6(d) of our Defined Contribution Basic Plan Document #01: "The employer may, not withstanding any limit to the contrary in the Adoption Agreement, limit the maximum deferral percentage for any Employee including but not limited to highly compensated employees." This provision complies with the IRS Final Catch-up Regulations. Thus, if the document states that the plan administrator has the right to set a limit by administrative policy, then it is an acceptable practice.

In additon, in our EGTRRA prototype standardized and nonstandardized 401(k) adoption agreements, under the elective deferral section, there is an option to limit the deferrals that HCEs may contribute:

"Highly Compensated Employees may defer any amount up to ____% (may be no more than 100%) of Compensation or $________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable]"

The Rev. 11/20/03, E-mail Alert 2003-22 article is below

Plan Limit Set by Plan Document
The Final Regulations on catch-up contributions state that when a plan limit is set for elective deferrals, the limit must be contained in the terms of the plan, but which is not required by the Internal Revenue Code. The IRS has clarified that the plan document may also describe a procedure for setting the plan elective deferral limit without the need to "hard code" an exact percentage or dollar limit.

An example of this type of document provision is found in stipulated deferral limit in section 4.7(c) of our Defined Contribution Basic Plan Document #01: "The employer may, not withstanding any limit to the contrary in the Adoption Agreement, limit the maximum deferral percentage for highly compensated employee." This provision complies with the IRS Final Catch-up Regulations. Thus, if the document states that the plan administrator has the right to set a limit by administrative policy, then it is an acceptable practice.