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What is the standard configuration for 401K plans ?

Feb 24, 2017 at 05:58 PM

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What is the standard configuration for ee catch up contributions for those who have hit the 270K IRS compensation limits? see below scenarios

Scenario 1.Employee that has hit the 270k compensation limit and has hit the pretax contribution limit of 18K . If we choose to switch the catch up configuration on SAP would continue to deduct EE catch up contributions up to 6K without Payroll manually entering the catch up contributions.

Example : EE has 270K in pensionable wages and has hit 18K in pretax contributions (hit both limits). If SAP were to switch the EE catch up configuration on the system would automatically continue to deduct EE catch up contributions up to the 6K limit without Payroll manually intervening.

Scenario 2. Once the employee has hit the 270k compensation limit, SAP will continue to deduct EE catch up contribution regardless if they have hit the 18K pretax limit. (I believe it states in our plan documents as well as the IRS that you must hit the 18K pretax limit prior to contributing to EE catch up contributions)

Example. EE has 270K in pensionable wages and only has 16K in pretax contributions. If SAP were to switch on the EE catch up contribution configuration , SAP would continue to deduct EE catch up contributions past the 270K and the pretax contribution would stay at 16K YTD. This would cause payroll to manually monitor all employees who have hit the 270K compensation limit and have not yet hit the pretax limit of 18K and cause a compliance issue with the IRS.

In testing if we hit the switch on for automatically deducting EE catch up it would work correctly for those who have hit 18K pre tax limits prior to hitting the 270k compensation limit. Why does this not work for Scenario 2? SHould this be a baseline configuration for those administering 401k plans?

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