Catch-up Contributions
Rev. 11/20/03, E-mail Alert 2003-22

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.