- salary deferrals: $17,000, plus $5,500 catch-up contributions if the employee is age 50 or older (Code Sections 402(g) and 414(v));
- annual compensation: $250,000 (Code Section 401(a)(17)); and
- total employee and employer contributions plus forfeitures: the lesser of 100 percent of an employee’s compensation or $50,000, plus $5,500 catch-up contributions if age 50 or older (Code Section 415(c)).
Example. Mary, age 49, whose annual compensation is $300,000 ($25,000 per month), elects to defer $1,417 per calendar month, up to $17,000 for the year. Mary may contribute to the plan until she reaches her annual deferral limit of $17,000 even though her compensation will exceed the annual limit of $250,000 in November. If a plan provides for matching contributions, the employer or plan administrator must follow the plan’s match formula. Example. The plan requires a match of 50 percent on salary deferrals that do not exceed 5 percent of compensation. Although Mary earned $300,000, your plan can only use up to $250,000 of her compensation when applying the matching formula. Mary’s matching contribution would be $6,250 (50 percent x (5 percent x $250,000)). Although Mary makes salary deferrals of $17,000, only $12,500 (5 percent of $250,000) will be matched. She must receive a matching contribution of $6,250 (50 percent x $12,500). Although not common, a plan can specifically require that salary deferrals cease once a participant’s compensation reaches the annual limit.If a plan specifies that salary deferrals be based on a participant’s first $250,000 compensation, then an employer or plan administrator must stop allowing the participant to make salary deferrals when his or her year-to-date compensation reaches $250,000, even though the employee hasn’t reached the annual $17,000 limit on salary deferrals, and must base the employer match on actual deferrals.