Employer didn't time 401(k) contribution correctly?

[cbender49]

My employer is trying to figure this out but if anyone here can straighten out my thoughts on it I would be appreciative.

I did not max my 401(k) in 2014. According to my W2 I contributed around $12K. Half of this contribution came from a year end paycheck that I received on 12/31/14. My income has gone up substantially in 2015 and I intended to max the account but recently found out that the year-end 2014 contribution was applied to my 2015 contribution limits by the plan administrator (ING) since my employer didn't enter the amounts to them until after 1/1/15. The 401(k) company says I have maxed the account for 2015 but I will only see a $12K tax deduction when I file my taxes since ~$6000 of that amount is already reflected on my 2014 W2. Is there an easy way around this? Can I contribute $6K to another type of account and not pay taxes this year on it? We are MFJ and are estimating total income in 2015 of ~$140K.

The silver lining is that we're trying to tackle some student loan debt so the extra funds help for that, I just don't want to pay more taxes than necessary and am not certain our income will be has high next year.

Thanks in advance!
       

[Cathy]

... I will only see a $12K tax deduction when I file my taxes since ~$6000 of that amount is already reflected on my 2014 W2. Is there an easy way around this? ...

It doesn't matter what the employer writes on your Form W-2. What matters is the law, not what is written on that information return. If you assert a "reasonable dispute" with respect to the contents of the Form W-2, and you otherwise "fully cooperate[]" with the IRS, then the IRS is not permitted to rely on the contents of the W-2 and instead, the IRS "shall have the burden of producing reasonable and probative information" to prove that the Form W-2 is accurate. 26 USC § 6201(d).

That said, the Form W-2 would appear to be correct here, regardless of anything else to be discussed below. Regardless of which year the "401(k) company" considers that deferral to be associated with, the fact is that you did not receive that money in 2014. Amounts deferred to a trust which is part of a "qualified cash or deferred arrangement" (commonly referred to as a "401(k) plan") are not "treated as distributed or made available to the employee", subject to applicable contribution limits. 26 USC § 402(e)(3), 402(g)(1)(A). Since you did not receive that money in 2014, it is correctly not included in your 2014 gross income.

Your real complaint here is that the employer has handled contributions in a manner that you did not expect. In particular, you thought that the deferral from your final paycheck of the year would be contributed to the relevant "qualified trust" on the last day of 2014, but it was apparently actually contributed on the first day of 2015. What you need to do is closely scrutinise the document governing the plan and see if the employer can be said to have violated or to be violating anything contained within. If so, you may have something to pursue. However, if your employer is in compliance with the terms of the plan and applicable law, they are not required to give you the opportunity to exclude a full $18,000 from your 2015 income. However, you could potentially take advantage of the remainder of your 26 USC § 402(g)(1)(A) limit by contributing to a different plan that permits elective deferrals as enumerated in 26 USC § 402(g)(3).

If the employer wants to facilitate your ability to enjoy your full 26 USC § 402(g)(1)(A) limit for 2015, there may be options open to the employer to allow that. If your employer is recalcitrant, you may be in for a hard time, but, as mentioned, it is possible that their actions are inconsistent with the plan document. I cannot express any view on that as I have not read the document governing the plan. My intent is just to provide you with some things that you may want to research, but you cannot rely on this information. You should retain counsel to assist you with these matters.

[El Marinero]

You should retain counsel to assist you with these matters.

Or, you could just let it go.  Mistakes and miscommunication happen. 

I would pay taxes based on the W2, and move on. 

[cbender49]

... I will only see a $12K tax deduction when I file my taxes since ~$6000 of that amount is already reflected on my 2014 W2. Is there an easy way around this? ...

That said, the Form W-2 would appear to be correct here, regardless of anything else to be discussed below. Regardless of which year the "401(k) company" considers that deferral to be associated with, the fact is that you did not receive that money in 2014. Amounts deferred to a trust which is part of a "qualified cash or deferred arrangement" (commonly referred to as a "401(k) plan") are not "treated as distributed or made available to the employee", subject to applicable contribution limits. 26 USC § 402(e)(3), 402(g)(1)(A). Since you did not receive that money in 2014, it is correctly not included in your 2014 gross income.

I'm not sure I understand this part of your response, or that it makes financial sense to retain counsel as that will likely equal or be more excessive than the cost of just moving past this with no change.  My 2014 and 2015 W2 will be correct in both mine, my employers, and the IRS' eyes. My earned wages were/are reported correctly. The hurdle I have is that ING will not allow me to contribute more than $12K to the 401k in 2015, and I will subsequently never be able to contribute that $6K amount in pre-tax dollars (assuming I max the account every year moving forward).

Without getting too technical, what other possible options do we have to reduce our taxes in 2015 assuming married filing jointly with estimated earned W2 wages for us each at $110K and $40K? I believe we will be beyond the tIRA deduction threshold.

[Cathy]

As explained above, there is no law that specifically says that an employer is required to allow you to defer the full $18,000 in 2015. However, if the document governing the retirement plan guarantees in some fashion your ability to defer the full 26 USC § 402(g) limit each year, then that would be binding on the employer and would be a valid basis for complaint. You or your counsel should read the document closely and see what it says.

You or your counsel could also research whether the one day delay in contributing your deferral to the qualified trust constituted a violation of such ERISA provisions as 29 USC §§ 1103(a) (assets to be held in trust) and 1104 (plan administrator to act "solely in the interest of the participants and beneficiaries"). There is a regulatory safe harbour at 29 CFR 2510.3-102(a)(2)(i) which says that an employer acts sufficiently fast in contributing the assets to the trust if (a) the assets are contributed "not later than the ... 7th business day following the day on which such amount would otherwise have been payable to the participant in cash", and (b) the plan has "fewer than 100 participants at the beginning of the plan year". For employers with more than 100 participants, there is no such safe harbour and even a delay of one day could theoretically be illegal if there was no legitimate purpose for it. I didn't mention this possible argument in my post above because I am not sure you will have much luck with this argument based on a delay of only a single day, which does not sound that bad.

As for what you can do, I answered that in my post above as well. One option is to work something out with your employer. If you cannot work something out with your employer, you are still entitled to make use of the full 26 USC § 402(g)(1)(A) limit, but you will have to do it by contributing to a different plan that permits elective deferrals as enumerated in 26 USC § 402(g)(3), such as a plan offered by another employer.

As mentioned, these posts are intended to provide only general information that you can use a basis for further research. No view is expressed on anything discussed. You should retain counsel to assist with your matter.

[teen persuasion]

First off, what is your company's fiscal year?  If it is not calendar year, and is instead something like July 1 to June 30, the 401k year will coincide.  If you contributed heavily at the end of the previous year and early this year it could push you over the limit.  Which annual limit applies is complicated in this scenario, too, since it straddles 2 tax years.  I believe the limit that applies is the one in force when the fiscal year begins, so last year's lower limit.  I ran into this problem when DH's employer insisted that he had overcontributed in the time period they switched from one method to the other.  He had contributed the calendar max.  I researched the issue, emailed my findings to the CFO/owner of the wealth management firm that handled the 401k (yeah, conflict of interest, much?) and he rescinded the order to reverse the contribution "overage".

Everything I've seen says that the date the contributions are withheld (the date of your check/paystub) is when the contribution is credited, not when the 401k company receives it, since the employer has a reasonable time period to transfer the contribution.  Your pay stub should list the contribution total for a given year.  Your employer needs to correct the records sent to the 401k firm telling them which year to attribute the contributions to.

[Cathy]

My posts above contain a fairly comprehensive discussion of this issue, but I suppose there are some things I did not explain very thoroughly.

The core object behind a plan commonly referred to as a "401(k) plan" is a "qualified trust" as defined in 26 USC § 401(a), which is "[a] trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries", and satisfying certain other requirements. As part of the plan, the employer may include an arrangement "under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash". 26 USC § 401(k)(2)(A). In other words, an employer may (but is not required to) offer a system whereby an employee can choose to receive a certain amount in cash or for the amount to be contributed to the qualified trust instead. Technically these "elective deferrals" are made by the employer, not by the employee, even though members on this forum frequently call them "employee contributions".

The general rule is that contributions to the qualified trust made directly by an employer to the trust bypassing the employee completely (including elective deferrals) are not treated as ever having been received by the employee and are not included in the gross income of the employee for any taxable year. 26 USC § 402(e)(3). However, this rule is subject to two distinct (but related) limits.

First, there is a limitation based on the employee's taxable year. An individual's elective deferrals are included in gross income for a taxable year "to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount" for the calendar year beginning in that taxable year. 26 USC § 402(g)(1)(A). For any taxable year beginning in 2015, the applicable dollar amount is $18,000. For the vast majority of US individual taxpayers, the taxable year is also the calendar year, although theoretically almost any year can be used. However, this limitation is based on the employee's taxable year, not any year specified by the employer or the plan.

Second, there is a limitation based on the calendar year. A trust shall not constitute a qualified trust unless the document governing the trust provides that elective deferrals made by an employee during the calendar year to all plans to which such deferrals can be made together sum to an amount no greater than the limitation specified in 26 USC § 402(g)(1)(A) for that year, which is again $18,000 for 2015. 26 USC § 401(a)(30). This second limit is purely a requirement as to the form of documents governing the plan and does not directly impose any obligations on the employee.

To summarise the above, if an employee's taxable year is the calendar year (which it is for virtually everybody), then the employee is entitled to exclude $18,000 worth of elective deferrals included from his income for 2015, assuming that he can actually make those elective deferrals. The caveat is that the employee will not actually be able to enjoy the full $18,000 of deferrals unless he works for employers who offer plans that allow him to defer $18,000. There is no law that specifically requires employers to offer such a plan.

The qualified trust will have some internal accounting under which contributions are shown to have been contributed on particular dates. However, the accounting of the qualified trust is not directly relevant from an employee's perspective (for the purpose of this post). OP says that for his last paycheck of the 2014, he requested that $6,000 be deferred. Regardless of how that $6,000 is handled in the accounting of the qualified trust (and in particular, whether it is attributed to 2014 or 2015), the key fact is that OP never received the $6,000 and therefore, it is not includible in OP's 2014 income regardless of the internal accounting of the qualified trust.

Because the internal accounting of the trust does not really matter for this analysis, we start to see that the question, as far as OP is concerned, is not really "did my employer credit the contribution to the right year?", but rather, "can my employer prevent me from deferring the full $18,000 in 2015?" The answer to that is "maybe". An employer is generally not required to offer any retirement plan at all. Nor is an employer required to pay you $18,000 in compensation.

There is no law that specifically requires an employer to provides employees with the opportunity to elect to defer $18,000 in 2015. However, there are principles of law that may indirectly impose this requirement, especially if the employee is not complying with the documents governing the plan. For example, the plan documents may provide that employees are entitled to defer a certain percentage of their compensation per calendar year, and the effect of the employer's actions described in the OP may be to effectively lower that percentage in contravention of the plan documents. That's just an example. This question cannot be fully analysed without actually reading the plan documents. At this point, I suggest that the reader re-read my previous two posts for further details: my first reply and my second reply.

As "teen persuasion" has more or less surmised, it may be the case here that the employer has just made a clerical error and does not really intend to prevent you from deferring $18,000 in 2015. However, without more information, we are just speculating. As mentioned, these posts are intended to provide only general information that you can use a basis for further research. No view is expressed on anything discussed. You should retain counsel to assist with your matter.

[Wile E. Coyote]

The employer should have designated the contribution as being on account of the prior year, even though it was deposited in January.  They should fix this.

[Cathy]

The employer should have designated the contribution as being on account of the prior year, even though it was deposited in January.  They should fix this.

I agree that this is likely what the employer intended to do (depending on the plan documents, which we haven't seen), but the issue in this topic is kind of subtle. For the purpose of the overall limitation on contributions to a qualified trust, the regulations provide that the contribution in question is almost certainly allocable to 2014 rather than 2015. 26 CFR 1.415(c)-1(b)(6)(i)(A). However, that does not really determine the question asked in this topic. The question asked in this topic is basically whether an employer can set OP's maximum deferral for 2015 at something less than the statutory maximum of $18,000. It's just a red herring that the plan trustee designated the contribution on its webpage as being made in 2015. It's an equivalent situation to the website saying it was made in 2014, but the employer still capping OP's deferrals at $12,000 for 2015. As discussed above, the plan documents will likely be relevant to whether the employer can do that.

I actually just thought of another argument too, which, if accepted, would mean that the employer's trust is not a qualified trust, but the merit of this argument is unclear. Specifically, 26 USC § 401(k)(4)(A) says that "A cash or deferred arrangement of any employer shall not be treated as a qualified cash or deferred arrangement if any other benefit is conditioned (directly or indirectly) on the employee electing to have the employer make or not make contributions under the arrangement in lieu of receiving cash". It could be argued that by lowering OP's maximum deferral for 2015, the company has conditioned a benefit (i.e. the maximum deferral) on OP's choice to defer money out of his final paycheck in 2014. The difficulty with this argument is that the statute says "if any other benefit is conditioned..." (emphasis added). This arguably suggests that conditioning aspects of the deferral program on the choice to defer is not categorically prohibited. The next sentence says that matching contributions are not prohibited, but I don't think it makes sense to read "other" as meaning "other than matching contributions", because that wouldn't be sensible English (i.e. we would expect the matching contributions to be mentioned first in that case). For that reason, the merit of this argument is unclear. The regulations at 26 CFR 1.401(k)-1(e)(6)(i) maintain the exact same ambiguity with "other".

Assuming the employer is recalcitrant, what other arguments do you have that could be used to encourage an employer in this situation to allow an employee to defer more than $12,000 in 2015 (other than possible arguments rooted in the plan documents and the "conditioning" argument)? (I phrase it that way because my "conditioning" argument (assuming it has merit) wouldn't actually force the employer do anything; it would just give the employer an incentive to do so to avoid losing deductions.)

(To be clear, I agree with you that that the plan documents likely provide some basis for an argument that OP's 2014 paycheck deferral should not reduce his 2015 deferral maximum, but that argument depends on documents we haven't seen, so I'm interested in other arguments. Or in other words, suppose for the purpose of discussion that the plan documents support the employer's actions.)

[cbender49]

Some backstory on this:
- Employer is a small private company of approx 15 employees.
- Fiscal year is the same as the calendar year.
- This situation has never happened or been noticed in the past.

Getting toward a conclusion:
- Employer HR is confident W2 is correct (which I haven't contested), and that the 12/31/14 contribution will be applicable to 2014, BUT the company where our 401k is housed, ING, obviously sees things differently and they will limit my ability to contribute 18K of earned 2015 wages. This obviously stinks because it will increase our tax bill by a nice sum that I wasn't planning for. 

[Cathy]

Employer HR is confident ... that the 12/31/14 contribution will be applicable to 2014, BUT ... ING ... sees things differently and they will limit my ability to contribute 18K of earned 2015 wages.

The plan administrator, ING, isn't some rogue operative that can do whatever it wants. The plan must be "maintained pursuant to a written instrument". 29 USC § 1102(a)(1). These are the plan documents that I have been alluding to above. The employer is required to make the "instruments under which the plan was established or is operated available for examination by any plan participant or beneficiary in the principal office of the administrator and in such other places as may be necessary to make available all pertinent information to all participants". 29 USC § 1024(b)(2) (emphasis added). As I said several times above, this is a right that you should exercise.

In my posts above, I declined to make any assumptions about the contents of the plan documents, and as a result, my replies were complicated. However, if we want to venture more into speculation land (and I mentioned this above as well), it's entirely possible that the plan documents specify that you are entitled to defer X% of your salary per year up to a maximum of the statutory maximum. Let's further speculate that you have a standing election in place to defer X% of your salary per year up to the statutory maximum. It is almost certain that the plan documents do not contain any scheme under which your 2015 deferral maximum is a function of whether you deferred money from your final 2014 paycheck. Under those assumptions, what would be happening here is that the employer and/or ING are ignoring the plan documents, which is illegal and may subject them to a civil action by you to "enforce [your] rights under the terms of the plan" or to "enjoin any act or practice which violates ... the terms of the plan". 29 USC §§ 1132(a)(1)(B), 1132(a)(3)(A). I stress that this argument depends on what the plan documents actually say, which again, we still have not seen.

You or your counsel should really obtain a copy of the plan documents and use them to resolve this dispute with the employer and/or ING, as I also said in all my past posts.

[teen persuasion]

Some backstory on this:
- Employer is a small private company of approx 15 employees.
- Fiscal year is the same as the calendar year.
- This situation has never happened or been noticed in the past.

Getting toward a conclusion:
- Employer HR is confident W2 is correct (which I haven't contested), and that the 12/31/14 contribution will be applicable to 2014, BUT the company where our 401k is housed, ING, obviously sees things differently and they will limit my ability to contribute 18K of earned 2015 wages. This obviously stinks because it will increase our tax bill by a nice sum that I wasn't planning for.

As Cathy has stressed, request a copy of the plan documents from HR, and read them.

Have HR investigate whether your employer notified ING that your 12/31/14 contributions were for 2014, not 2015.  If they did not explicitly state that, ING may simply be defaulting to 2015 since that is when they received them.

This has probably not been noticed before because it is a series of relatively unusual edge conditions.  Most people  outside of this forum do not regularly max their 401k.  Of those that do, most do not have a large lump sum contributed from the last paycheck.  That last paycheck is not always the very last day of the year, leaving no time to make the transfer to ING before the new year.  And this may have been happening all along (that is, the last 401k deposit getting attributed to the next year), but no one looked closely at the exact amounts.  If you contribute fairly evenly throughout the year, it simply appears to wrap: the last contribution of 2014 gets put in 2015, and the last contribution of 2015 gets put in 2016, but still the normal number of contributions per year.

[cbender49]

Some backstory on this:
- Employer is a small private company of approx 15 employees.
- Fiscal year is the same as the calendar year.
- This situation has never happened or been noticed in the past.

Getting toward a conclusion:
- Employer HR is confident W2 is correct (which I haven't contested), and that the 12/31/14 contribution will be applicable to 2014, BUT the company where our 401k is housed, ING, obviously sees things differently and they will limit my ability to contribute 18K of earned 2015 wages. This obviously stinks because it will increase our tax bill by a nice sum that I wasn't planning for.

As Cathy has stressed, request a copy of the plan documents from HR, and read them.

Have HR investigate whether your employer notified ING that your 12/31/14 contributions were for 2014, not 2015.  If they did not explicitly state that, ING may simply be defaulting to 2015 since that is when they received them.

This has probably not been noticed before because it is a series of relatively unusual edge conditions.  Most people  outside of this forum do not regularly max their 401k.  Of those that do, most do not have a large lump sum contributed from the last paycheck.  That last paycheck is not always the very last day of the year, leaving no time to make the transfer to ING before the new year.  And this may have been happening all along (that is, the last 401k deposit getting attributed to the next year), but no one looked closely at the exact amounts.  If you contribute fairly evenly throughout the year, it simply appears to wrap: the last contribution of 2014 gets put in 2015, and the last contribution of 2015 gets put in 2016, but still the normal number of contributions per year.

I requested a copy of the plan documents so should have those soon. It's definitely something that I'm sure doesn't happen all that often, and hopefully I'll have some closure on it soon one way or the other. I'll update when I can, thanks everyone!

[kkbmustang]

Employer HR is confident ... that the 12/31/14 contribution will be applicable to 2014, BUT ... ING ... sees things differently and they will limit my ability to contribute 18K of earned 2015 wages.

The plan administrator, ING, isn't some rogue operative that can do whatever it wants. The plan must be "maintained pursuant to a written instrument". 29 USC § 1102(a)(1). These are the plan documents that I have been alluding to above. The employer is required to make the "instruments under which the plan was established or is operated available for examination by any plan participant or beneficiary in the principal office of the administrator and in such other places as may be necessary to make available all pertinent information to all participants". 29 USC § 1024(b)(2) (emphasis added). As I said several times above, this is a right that you should exercise.

In my posts above, I declined to make any assumptions about the contents of the plan documents, and as a result, my replies were complicated. However, if we want to venture more into speculation land (and I mentioned this above as well), it's entirely possible that the plan documents specify that you are entitled to defer X% of your salary per year up to a maximum of the statutory maximum. Let's further speculate that you have a standing election in place to defer X% of your salary per year up to the statutory maximum. It is almost certain that the plan documents do not contain any scheme under which your 2015 deferral maximum is a function of whether you deferred money from your final 2014 paycheck. Under those assumptions, what would be happening here is that the employer and/or ING are ignoring the plan documents, which is illegal and may subject them to a civil action by you to "enforce [your] rights under the terms of the plan" or to "enjoin any act or practice which violates ... the terms of the plan". 29 USC §§ 1132(a)(1)(B), 1132(a)(3)(A). I stress that this argument depends on what the plan documents actually say, which again, we still have not seen.

You or your counsel should really obtain a copy of the plan documents and use them to resolve this dispute with the employer and/or ING, as I also said in all my past posts.

Cathy-

Just curious about something. You are all over this forum making definitive statements and quoting statutes from the Internal Revenue Code, a variety of Canadian laws, and on a ton of other topics, as well. As someone with over 15 years of experience in retirement benefits and executive compensation in the US, I've noticed that you don't use terminology consistent with this area of expertise. So, I read through some of your older posts. As of October 2014 you were planning to FIRE by the time you were 30 and mentioned you were an engineer. What experience or education would give an engineer expertise in so many areas of the law in both the US and Canada? I ask, because while I understand this is an anonymous forum on the internet, it's still not cool to pass yourself off as an expert if you're not.

[Cathy]

...You are all over this forum making definitive statements ...

My statements are always carefully qualified. Even the post you quoted illustrates that. The part that is speculation is preceded by "if we want to venture ... into speculation". The speculation is then further qualified by use of the word "possibly". The next sentence begins with "Let's further speculate". After that, there is a sentence beginning with "Under those assumptions". Next, there is a reminder that the speculation is based on documents that "we still have not seen". The only "definitive statements" in that post are literally just citations to a statute. The truth is I am usually very reluctant to engage in speculation at all, but the abstract statement to read the documents governing the plan was arguably made easier to understand by concrete examples of how it could be helpful, even if those examples were speculative in nature (and they were clearly indicated to be speculative in nature).

... I've noticed that you don't use terminology consistent with this area of expertise...

This is not a substantive criticism (and maybe it wasn't intended to be a criticism). The terminology I use is almost always the language used in the relevant statutes and authorities. Sometimes I use other phrasing to make things simpler to understand, but without compromising the substance of the message.

...What experience or education would give [you] expertise in so many areas of the law in both the US and Canada?

I'm sure many readers who have looked at my posting history have wondered that. My posts have contained descriptions of the laws of two countries, many individual US states, several Canadian provinces, and, in a couple cases, other foreign countries. The discussions have not been limited to any particular topic, but have canvassed taxes, tort law, contracts, equity, administrative law, and constitutional law, among other things. In all posts, the statements have been carefully qualified to avoid drawing unjustifed conclusions, and the purpose of the posts has been only to push people in the right direction of research rather than to offer a definitive view on their matter, but it's still surprising that one person could even write about such a broad range of topics. And that is without even considering all the other things I have written about, such as pure math, physics, psychology, statistics, and even a few posts on computer science.

I can assure you that my life story and experience is indeed fascinating, impressive, and compelling, even in comparison to my corpus of posts on the public forum. However, for various reasons, I have declined to share anything about my background on the forum. This thread is certainly not the right vehicle for that either. I will consider sending you a private message to answer your question or part of it, but, if I decide to do so, it would be a bit later, not at the moment.

[brooklynguy]

I ask, because while I understand this is an anonymous forum on the internet, it's still not cool to pass yourself off as an expert if you're not.

When Cathy was still relatively new to the forum, I made a similar (but much less tactful) observation (in addition to erroneously accusing her of making a frivolous argument that would not have been made by a competent expert, based on my own misinterpretation of her post).  Whether or not Cathy is an accredited expert in each of the various areas about which she has posted in the forum, I think it is clear from the content of her posts that she does indeed possess the relevant expertise (and, in our close-to-perfect "marketplace of ideas" of a forum, her posts always seem to hold up to the scrutiny of the various bona fide experts participating in the discussion).

[kkbmustang]

I ask, because while I understand this is an anonymous forum on the internet, it's still not cool to pass yourself off as an expert if you're not.

When Cathy was still relatively new to the forum, I made a similar (but much less tactful) observation (in addition to erroneously accusing her of making a frivolous argument that would not have been made by a competent expert, based on my own misinterpretation of her post).  Whether or not Cathy is an accredited expert in each of the various areas about which she has posted in the forum, I think it is clear from the content of her posts that she does indeed possess the relevant expertise (and, in our close-to-perfect "marketplace of ideas" of a forum, her posts always seem to hold up to the scrutiny of the various bona fide experts participating in the discussion).

I'm really just incredibly curious. I wasn't active on the forum for a very long period of time due to medical issues, so I haven't read all of Cathy's posts. But, my radar went off. And it went off even more when I looked at other posts, although admittedly not even remotely close to all of them. And stuff didn't add up. I'm not saying it's impossible for Cathy to have varied expertise, but the tone of the posts that I read struck me as, I don't know, off. Of course, this is the internet, so tone can sometimes be misconstrued. (And the irony is not lost on me that it's entirely possible the tone of MY post could be misconstrued.) I contemplated sending a PM, but for whatever reason chose not to. I dunno.

And I actually spent like 30 minutes yesterday researching the issue raised by the OP in this thread. Because I don't think Cathy's advice, even given the statutory language cited, is correct. After 30 minutes I decided I didn't have to argue why she was wrong and moved along on my merry way. I still, based on a long career focused only the area of employee benefits/executive compensation, don't think she's right on this point. But I'm not going to spend the time it would take to find something authoritative on it.

At any rate, I wasn't trying to be rude. I just saw red flags flying.

[Cathy]

And I actually spent like 30 minutes yesterday researching the issue raised by the OP in this thread...

I actually spent a considerable amount of time researching this topic too (several hours in fact, between my various posts). That's why I was surprised by the terse reply by Wile E. Coyote that acted like this was a very simple issue. In other posts, he has seemed to be knowledgeable about these matters, but his post in this topic underestimated the complexity of this issue. You'll notice my reply was kind though. I simply asked what arguments he was relying on, leaving open the possibility that I had missed some obvious point.

Sometimes I even spend hours researching a topic on this forum and then don't even end up posting anything because I decide it's too complicated to post anything without doing more research than I'm willing to do.

If you think I write any of these posts without doing significant research, you are very wrong. I don't just read the statute and regulations; I also search for any relevant case law (although there isn't really any directly relevant case law for this particular thread, as it's an obscure issue) and I search for and read journal articles as well. In fact, you may have noticed my posts tend to cite a wide variety of materials, not just statutes (although in this thread, it was just statutes and regulations).

Because I don't think Cathy's advice, even given the statutory language cited, is correct.

I've given two pieces of advice in this thread: (1) obtain a copy of the documents governing the plan; and (2) retain counsel. Taking a broader meaning of the word "advice" to include the other comments I made, I'm genuinely curious which claim you think is wrong, but I would hope that the reply would contain an actual legal argument, not just a bald assertion that something is wrong. I'm more than willing to engage with any arguments you may have, but you are right that the discourse will take a significant chunk of time -- for both of us -- as researching these matters is a lot more work than most posters on this forum probably realise.

[kkbmustang]

I've given two pieces of advice in this thread: (1) obtain a copy of the documents governing the plan; and (2) retain counsel. Taking a broader meaning of the word "advice" to include the other comments I made, I'm genuinely curious which claim you think is wrong, but I would hope that the reply would contain an actual legal argument, not just a bald assertion that something is wrong. I'm more than willing to engage with any arguments you may have, but you are right that the discourse will take a significant chunk of time -- for both of us -- as researching these matters is a lot more work than most posters on this forum probably realise.

It's not the advice to get a copy of the plan or retain counsel that I took issue with. And the highlighted language is the tone I was referring to. This comes across to me as supremely arrogant. Of course, from my side of the computer, I know that I have the expertise, the graduate degrees and the license to practice law. So, whatever.

First, there is a limitation based on the employee's taxable year. An individual's elective deferrals are included in gross income for a taxable year "to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount" for the calendar year beginning in that taxable year. 26 USC § 402(g)(1)(A). For any taxable year beginning in 2015, the applicable dollar amount is $18,000. For the vast majority of US individual taxpayers, the taxable year is also the calendar year, although theoretically almost any year can be used. However, this limitation is based on the employee's taxable year, not any year specified by the employer or the plan.

This statement that elective deferrals are only based on the employee's taxable year is not correct.

The reporting of an employee's income on a W-2, which considers amounts deferred by the employee (i.e., what is referred to as an election in accordance with a cash or deferred arrangement), is based on the employee's taxable year (the calendar year). However, the 402(g) limit is a plan limit which is based on the plan year, not each individual employee's tax year. A plan year can be a calendar year or a fiscal year. Again, the 402(g) limit is a plan limit. It is not determined by reference to the employee's taxable year.

The employee's taxable year and the plan's plan year are two very different things.

Second, there is a limitation based on the calendar year. A trust shall not constitute a qualified trust unless the document governing the trust provides that elective deferrals made by an employee during the calendar year to all plans to which such deferrals can be made together sum to an amount no greater than the limitation specified in 26 USC § 402(g)(1)(A) for that year, which is again $18,000 for 2015. 26 USC § 401(a)(30). This second limit is purely a requirement as to the form of documents governing the plan and does not directly impose any obligations on the employee.

Here is what Code section 401(a)(30) actually says: "In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year."

The interplay between the 402(g) limit and this provision is nuanced. However, you skip over an important part in your summary of the statute. I will break it down for you:

• In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year: This refers to the trust that holds the assets of the plan participants, here their employee contributions (also referred to as elective deferrals or elective contributions)
• Unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan: This is what requires employers to include in the plan provisions that in determining the total elective deferrals made by a participant include any elective deferrals made to any plans sponsored by that particular employer. In other words, the employer can't sponsor three different 401(k) plans and allow employees to defer $18k to each of the three plans
• May not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year: This is the part that establishes the limit (i.e., $18k which is adjusted for inflation)

If a plan (or plans, if there is more than one plan sponsored by the same employer) allows contributions that exceed $18,000 (the 402(g) amount), it will no longer remain qualified for tax purposes. If a plan finds that it has allowed an employee to defer more than this amount, it is required to make a corrective distribution equal to the amount in excess of the 402(g) limit. If it does not, there will be consequences. These consequences can include correction, excise taxes, or disqualification.

However, you state that this limit is "purely a requirement as to the form of documents governing the plan and does not directly impose any obligations on the employee."

This is also incorrect. See specifically in the 401(a)(30) language that references other plans sponsored by the same employer. (See this specific language -- "deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan.")

EXAMPLE: Assume Employee A works for Employer ABC from January 1 to June 30 and defers $15,000 to the ABC 401(k) Plan. Further assume that Employee A quits working for Employer ABC, and instead goes to work for Employer XYZ. From July 1 to December 31, Employee A defers another $15,000 to the XYZ 401(k) Plan. Both plans will assume that Employee A complied with their plan because they otherwise have no way of knowing. Employee A has an obligation to notify one or both plans so a corrective distribution can be made. This is an obligation of the employee - i.e., to notify the plan(s). If you had actual hands-on experience in this area, not just access to the internet, you'd know this.

"May not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year" - For plan taxable years beginning in such calendar year: this means that if a plan has a fiscal year that is not the calendar year, the 402(g) limit that applies for the plan year is the 402(g) limit applicable in such calendar year.

EXAMPLE: 2015 402(g) limit is $18k (1/1 to 12/31). The plan year is 2/1 to 1/31. The 2015 402(g) limit of $18k will apply to the plan year beginning 2/1/2015.

And I actually spent like 30 minutes yesterday researching the issue raised by the OP in this thread...

If you think I write any of these posts without doing significant research, you are very wrong. I don't just read the statute and regulations; I also search for any relevant case law (although there isn't really any directly relevant case law for this particular thread, as it's an obscure issue) and I search for and read journal articles as well. In fact, you may have noticed my posts tend to cite a wide variety of materials, not just statutes (although in this thread, it was just statutes and regulations).

I don't doubt that you spend hours researching. However, in this particular area, it's much more instructive to research IRS guidance, not case law. While of course case law plays a role, the majority of these issues are hashed out through IRS guidance. These can come in many forms, not just statute or regulations, but also Revenue Procedures, Revenue Rulings, Notices, Private Letter Rulings, etc.

For example, in this particular area, I would consult the latest Rev. Procs. regarding EPCRS for guidance. If you want to dig in there, here are the cites: Revenue Procedure 2013-12, 2013-04 I.R.B. 313, modified by Revenue Procedure 2015-27, 2015-16 I.R.B. 914, and Revenue Procedure 2015-28, 2015-16 I.R.B. 920. If you're interested, turn your attention to the correction method where an employer doesn't allow an employee to defer the correct amount. This is called an operational error (i.e., the failure to follow the terms of the plan).

There are other examples, but I'm not going to identify them all. However, this should be sufficient to demonstrate that I'm not making a bald assertion.

EDITED to add another example.

[Cathy]

...This comes across to me as supremely arrogant. ...There are other examples, but I'm not going to identify them all. However, this should be sufficient to demonstrate that I'm not making a bald assertion.

Hi kkbmustang,

Thank you for your reply. I can tell you put a lot of effort into it. However, with the greatest of respect, you have not succeeded in identifying an error in what I wrote. Before I respond to each of your alleged errors, let me add some initial comments:

When I engage with posters on this forum, I read each post in an incredibly charitable fashion. I always try my best to extract a salient argument and find something of value in each and every post. I pride myself on that, in fact. In no case do I assume that other posters are clueless. My only goal is to help people, in whatever ways I can. I feel like you have taken a much different approach to my posts than what I would take to yours. In particular, you have tried so hard to find errors that you haven't attempted to find a charitable reading of the message, and in doing so, you've also overlooked what I literally said.

I think you and I could make good friends in the future, but such a relationship should start by reading each others' posts charitably.

With those remarks said, I will respond to each of your alleged errors.

Second, there is a limitation based on the calendar year. A trust shall not constitute a qualified trust unless the document governing the trust provides that elective deferrals made by an employee during the calendar year to all plans to which such deferrals can be made together sum to an amount no greater than the limitation specified in 26 USC § 402(g)(1)(A) for that year, which is again $18,000 for 2015. 26 USC § 401(a)(30). This second limit is purely a requirement as to the form of documents governing the plan and does not directly impose any obligations on the employee.

Here is what Code section 401(a)(30) actually says: "In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year."

The interplay between the 402(g) limit and this provision is nuanced. However, you skip over an important part in your summary of the statute. I will break it down for you:

• In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year: This refers to the trust that holds the assets of the plan participants, here their employee contributions (also referred to as elective deferrals or elective contributions)
• Unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan: This is what requires employers to include in the plan provisions that in determining the total elective deferrals made by a participant include any elective deferrals made to any plans sponsored by that particular employer. In other words, the employer can't sponsor three different 401(k) plans and allow employees to defer $18k to each of the three plans
• May not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year: This is the part that establishes the limit (i.e., $18k which is adjusted for inflation)

Here you have merely restated what I already said, using a lot more words. You have not identified any error.

If a plan (or plans, if there is more than one plan sponsored by the same employer) allows contributions that exceed $18,000 (the 402(g) amount), it will no longer remain qualified for tax purposes. If a plan finds that it has allowed an employee to defer more than this amount, it is required to make a corrective distribution equal to the amount in excess of the 402(g) limit. If it does not, there will be consequences. These consequences can include correction, excise taxes, or disqualification.

This is true, but it's not inconsistent with my post. It's just more information.

However, you state that this limit is "purely a requirement as to the form of documents governing the plan and does not directly impose any obligations on the employee."

This is also incorrect.

This was not incorrect. The direct function of that statute is to impose a requirement on the form of documents governing the plan, namely requiring them to include a limit on elective deferrals. See below for more clarification on this.

See specifically in the 401(a)(30) language that references other plans sponsored by the same employer. (See this specific language -- "deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan.")

This was specifically mentioned in my post already, in particular the portion of the sentence where I said "to all plans to which such deferrals can be made together sum" (emphasis added).

EXAMPLE: Assume Employee A works for Employer ABC from January 1 to June 30 and defers $15,000 to the ABC 401(k) Plan. Further assume that Employee A quits working for Employer ABC, and instead goes to work for Employer XYZ. From July 1 to December 31, Employee A defers another $15,000 to the XYZ 401(k) Plan. Both plans will assume that Employee A complied with their plan because they otherwise have no way of knowing. Employee A has an obligation to notify one or both plans so a corrective distribution can be made. This is an obligation of the employee - i.e., to notify the plan(s). If you had actual hands-on experience in this area, not just access to the internet, you'd know this.

Despite your gratuitous insult, this is not inconsistent with my post. The obligation to notify the employers, as you you describe, is not imposed by the statute, but is imposed by the terms of the plan(s). The terms of the plan are in turn controlled by the statute. This is what I meant when I said that this statute does not "directly impose any obligations on the employee" (emphasis added). What you are describing here is a way that the statute can indirectly impose requirements on the employee, namely by requiring the plan to contain certain terms which the employee must then comply with.

Most importantly, if you simply assumed that I am not a fool, you would have easily extracted a charitable meaning of what I meant by "does not directly impose any obligations on the employee". Instead, you have assumed I am a fool and taken the least charitable interpretation possible.

"May not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year" - For plan taxable years beginning in such calendar year: this means that if a plan has a fiscal year that is not the calendar year, the 402(g) limit that applies for the plan year is the 402(g) limit applicable in such calendar year.

Here I am not sure what you are trying to say, but let's just review the statutes and clarify the import of this language. Here is the full text of 26 USC § 401(a)(30):

In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year.

The first and second bolded part explains that this statute is concerned with "elective deferrals ... made ... during a calendar year" and with imposing a limit on "such deferrals" (namely, deferrals made during a calendar year), i.e., this limit is concerned with counting contributions during a calendar year. The language in the third bolded part is a bit tricky, and it might make you wonder why it uses the convoluted phrase "for taxable years beginning in such calendar year". However, the reason it uses that language is not because this provision is concerned with a year other than a calendar year, but rather because it is mirroring the language from § 402(g)(1)(A). Specifically, § 402(g)(1)(B) contains a table that specifies a dollar amount "For taxable years beginning in calendar year:". The requirement at 26 USC § 401(a)(30) then mirrors this language, i.e., it's asking us to look in that table. The function of mirroring that language is not that § 401(a)(30) is concerned with something other than a calendar year, but rather that it is referring to the table of § 402(g)(1)(B).

First, there is a limitation based on the employee's taxable year. An individual's elective deferrals are included in gross income for a taxable year "to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount" for the calendar year beginning in that taxable year. 26 USC § 402(g)(1)(A). For any taxable year beginning in 2015, the applicable dollar amount is $18,000. For the vast majority of US individual taxpayers, the taxable year is also the calendar year, although theoretically almost any year can be used. However, this limitation is based on the employee's taxable year, not any year specified by the employer or the plan.

This statement that elective deferrals are only based on the employee's taxable year is not correct.

The reporting of an employee's income on a W-2, which considers amounts deferred by the employee (i.e., what is referred to as an election in accordance with a cash or deferred arrangement), is based on the employee's taxable year (the calendar year). However, the 402(g) limit is a plan limit which is based on the plan year, not each individual employee's tax year. A plan year can be a calendar year or a fiscal year. Again, the 402(g) limit is a plan limit. It is not determined by reference to the employee's taxable year.

The employee's taxable year and the plan's plan year are two very different things.

The § 402(g) limit is an individual (i.e. employee) limit, not a plan limit. This statute is concerned with limiting the amount of contributions that an individual can exclude from income, not with limiting contributions to a plan. See, e.g., KH Company v. Commissioner, TC Memo 2014-31, slip op at 14 ("Section 402(g) provides general limitations on the amounts of elective deferrals an individual may exclude from gross income."). Limitations on contributions to plans are found in other statutes.

I don't doubt that you spend hours researching. However, in this particular area, it's much more instructive to research IRS guidance, not case law. While of course case law plays a role, the majority of these issues are hashed out through IRS guidance. These can come in many forms, not just statute or regulations, but also Revenue Procedures, Revenue Rulings, Notices, Private Letter Rulings, etc.

I have discussed documents of this nature in countless past posts, so I am obviously aware of them. I have even discussed the relative authority of them in the context of US administrative law. The thing is, not every post I make here is a law journal article. These posts are just intended to provide a basis for future research. That is also explicitly stated in many of my posts, e.g., my first post here says "My intent is just to provide you with some things that you may want to research" (emphasis added).

For example, in this particular area, I would consult the latest Rev. Procs. regarding EPCRS for guidance. If you want to dig in there, here are the cites: Revenue Procedure 2013-12, 2013-04 I.R.B. 313, modified by Revenue Procedure 2015-27, 2015-16 I.R.B. 914, and Revenue Procedure 2015-28, 2015-16 I.R.B. 920. If you're interested, turn your attention to the correction method where an employer doesn't allow an employee to defer the correct amount. This is called an operational error (i.e., the failure to follow the terms of the plan).

This is additional information, but it's not inconsistent with anything I said. In fact, in my first post, I specifically mentioned that there were options open to the employer to correct this situation, namely when I said "If the employer wants to facilitate your ability to enjoy your full 26 USC § 402(g)(1)(A) limit for 2015, there may be options open to the employer to allow that". I did not describe those options, but that is not an error. It just means that I provided a basis for further research, which was actually the stated purpose of the post.




Again, let me say that I think we could be good friends. However, I think you would get more value out of my posts if you read them charitably.

[kkbmustang]

Oh, boy. This is going to be challenging on an iPad. I will do my best.

...This comes across to me as supremely arrogant. ...There are other examples, but I'm not going to identify them all. However, this should be sufficient to demonstrate that I'm not making a bald assertion.

Hi kkbmustang,

Thank you for your reply. I can tell you put a lot of effort into it. However, with the greatest of respect, you have not succeeded in identifying an error in what I wrote. Before I respond to each of your alleged errors, let me add some initial comments:

When I engage with posters on this forum, I read each post in an incredibly charitable fashion. I always try my best to extract a salient argument and find something of value in each and every post. I pride myself on that, in fact. In no case do I assume that other posters are clueless. My only goal is to help people, in whatever ways I can. I feel like you have taken a much different approach to my posts than what I would take to yours. In particular, you have tried so hard to find errors that you haven't attempted to find a charitable reading of the message, and in doing so, you've also overlooked what I literally said.

I think you and I could make good friends in the future, but such a relationship should start by reading each others' posts charitably.

With those remarks said, I will respond to each of your alleged errors.

Cathy-

Actually, I started out questioning your expertise in this specific area of tax. Which, as I type that, sounds worse than I intended.

I did not assume you were clueless. However, I did assume that you are self-taught from internet research and do not have actual, direct, professional tax or legal expertise. Is that incorrect? If I'm way off base here, please accept my apologies.

In my experience, there is a wide chasm (is that the right word?) between what the literal language of a statute appears to say, the interpretation in the Regs or other rulings, and the application to real world scenarios. I have been wrong many times by presuming that what I think a statute literally says equals how it is interpreted for application to facts. This is the gap I believe divides our opinions and interpretations.

Second, there is a limitation based on the calendar year. A trust shall not constitute a qualified trust unless the document governing the trust provides that elective deferrals made by an employee during the calendar year to all plans to which such deferrals can be made together sum to an amount no greater than the limitation specified in 26 USC § 402(g)(1)(A) for that year, which is again $18,000 for 2015. 26 USC § 401(a)(30). This second limit is purely a requirement as to the form of documents governing the plan and does not directly impose any obligations on the employee.

Here is what Code section 401(a)(30) actually says: "In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year."

The interplay between the 402(g) limit and this provision is nuanced. However, you skip over an important part in your summary of the statute. I will break it down for you:

• In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year: This refers to the trust that holds the assets of the plan participants, here their employee contributions (also referred to as elective deferrals or elective contributions)
• Unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan: This is what requires employers to include in the plan provisions that in determining the total elective deferrals made by a participant include any elective deferrals made to any plans sponsored by that particular employer. In other words, the employer can't sponsor three different 401(k) plans and allow employees to defer $18k to each of the three plans
• May not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year: This is the part that establishes the limit (i.e., $18k which is adjusted for inflation)

Here you have merely restated what I already said, using a lot more words. You have not identified any error.

I simply disagree. The 401 section of the Code generally applies to qualified plans. Personal income tax rules are in sections earlier in the Code, like 1-61. Of course this isn't exact, but I don't have the Code and Regs in front of me.

If a plan (or plans, if there is more than one plan sponsored by the same employer) allows contributions that exceed $18,000 (the 402(g) amount), it will no longer remain qualified for tax purposes. If a plan finds that it has allowed an employee to defer more than this amount, it is required to make a corrective distribution equal to the amount in excess of the 402(g) limit. If it does not, there will be consequences. These consequences can include correction, excise taxes, or disqualification.

This is true, but it's not inconsistent with my post. It's just more information.

Again, 401 is instructive as to the tax qualification of the plan, not of the employee. I'm sure there is another section that addresses the tax treatment to the employee but it's not from this code section.

However, you state that this limit is "purely a requirement as to the form of documents governing the plan and does not directly impose any obligations on the employee."

This is also incorrect.

This was not incorrect. The direct function of that statute is to impose a requirement on the form of documents governing the plan, namely requiring them to include a limit on elective deferrals. See below for more clarification on this.

I don't need clarification, but thank you.

See specifically in the 401(a)(30) language that references other plans sponsored by the same employer. (See this specific language -- "deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan.")

This was specifically mentioned in my post already, in particular the portion of the sentence where I said "to all plans to which such deferrals can be made together sum" (emphasis added).

The way I read it in this section you were applying the plan requirements to the employee requirements.

EXAMPLE: Assume Employee A works for Employer ABC from January 1 to June 30 and defers $15,000 to the ABC 401(k) Plan. Further assume that Employee A quits working for Employer ABC, and instead goes to work for Employer XYZ. From July 1 to December 31, Employee A defers another $15,000 to the XYZ 401(k) Plan. Both plans will assume that Employee A complied with their plan because they otherwise have no way of knowing. Employee A has an obligation to notify one or both plans so a corrective distribution can be made. This is an obligation of the employee - i.e., to notify the plan(s). If you had actual hands-on experience in this area, not just access to the internet, you'd know this.

Despite your gratuitous insult, this is not inconsistent with my post. The obligation to notify the employers, as you you describe, is not imposed by the statute, but is imposed by the terms of the plan(s). The terms of the plan are in turn controlled by the statute. This is what I meant when I said that this statute does not "directly impose any obligations on the employee" (emphasis added). What you are describing here is a way that the statute can indirectly impose requirements on the employee, namely by requiring the plan to contain certain terms which the employee must then comply with.

Most importantly, if you simply assumed that I am not a fool, you would have easily extracted a charitable meaning of what I meant by "does not directly impose any obligations on the employee". Instead, you have assumed I am a fool and taken the least charitable interpretation possible.

I laughed out loud here. I will give you the gratuitous insult. But I wasn't assuming you were a fool. Most people do not understand all of the intricacies. I simply assumed you were one of those people. The part that got me crosswise.... Well, never mind. I'm so tired anything I write will just make me sound like a complete asshole.

"May not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year" - For plan taxable years beginning in such calendar year: this means that if a plan has a fiscal year that is not the calendar year, the 402(g) limit that applies for the plan year is the 402(g) limit applicable in such calendar year.

Here I am not sure what you are trying to say, but let's just review the statutes and clarify the import of this language. Here is the full text of 26 USC § 401(a)(30):

In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year.

The first and second bolded part explains that this statute is concerned with "elective deferrals ... made ... during a calendar year" and with imposing a limit on "such deferrals" (namely, deferrals made during a calendar year), i.e., this limit is concerned with counting contributions during a calendar year. The language in the third bolded part is a bit tricky, and it might make you wonder why it uses the convoluted phrase "for taxable years beginning in such calendar year". However, the reason it uses that language is not because this provision is concerned with a year other than a calendar year, but rather because it is mirroring the language from § 402(g)(1)(A). Specifically, § 402(g)(1)(B) contains a table that specifies a dollar amount "For taxable years beginning in calendar year:". The requirement at 26 USC § 401(a)(30) then mirrors this language, i.e., it's asking us to look in that table. The function of mirroring that language is not that § 401(a)(30) is concerned with something other than a calendar year, but rather that it is referring to the table of § 402(g)(1)(B).

[/quote]

Sincerely, this is an incorrect interpretation. And I know it is because when I was a baby associate at a ginormous law firm, I had to write several research memos on this exact issue. This part has to do with which 402(g) limit the employer has to apply when the plan's fiscal year isn't the same as the employee's taxable year. The language in 401(a)(30) applies to the plan. I'm sure there's another code section that links the 402(g) limit to employees and the amount they can take pretax.

First, there is a limitation based on the employee's taxable year. An individual's elective deferrals are included in gross income for a taxable year "to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount" for the calendar year beginning in that taxable year. 26 USC § 402(g)(1)(A). For any taxable year beginning in 2015, the applicable dollar amount is $18,000. For the vast majority of US individual taxpayers, the taxable year is also the calendar year, although theoretically almost any year can be used. However, this limitation is based on the employee's taxable year, not any year specified by the employer or the plan.

This statement that elective deferrals are only based on the employee's taxable year is not correct.

The reporting of an employee's income on a W-2, which considers amounts deferred by the employee (i.e., what is referred to as an election in accordance with a cash or deferred arrangement), is based on the employee's taxable year (the calendar year). However, the 402(g) limit is a plan limit which is based on the plan year, not each individual employee's tax year. A plan year can be a calendar year or a fiscal year. Again, the 402(g) limit is a plan limit. It is not determined by reference to the employee's taxable year.

The employee's taxable year and the plan's plan year are two very different things.

The § 402(g) limit is an individual (i.e. employee) limit, not a plan limit. This statute is concerned with limiting the amount of contributions that an individual can exclude from income, not with limiting contributions to a plan. See, e.g., KH Company v. Commissioner, TC Memo 2014-31, slip op at 14 ("Section 402(g) provides general limitations on the amounts of elective deferrals an individual may exclude from gross income."). Limitations on contributions to plans are found in other statutes.

We might be saying the same thing, but from different directions.
The language in 401 = Plan.
The language elsewhere in the Code (incorporated by reference probably in sec. 61) = Employee.
402(g) = the dollar amount referenced in BOTH 401 and (pretty sure) 61.

I don't doubt that you spend hours researching. However, in this particular area, it's much more instructive to research IRS guidance, not case law. While of course case law plays a role, the majority of these issues are hashed out through IRS guidance. These can come in many forms, not just statute or regulations, but also Revenue Procedures, Revenue Rulings, Notices, Private Letter Rulings, etc.

I have discussed documents of this nature in countless past posts, so I am obviously aware of them. I have even discussed the relative authority of them in the context of US administrative law. The thing is, not every post I make here is a law journal article. These posts are just intended to provide a basis for future research. That is also explicitly stated in many of my posts, e.g., my first post here says "My intent is just to provide you with some things that you may want to research" (emphasis added).

Okay, well I clearly didn't read those posts. My apologies.

For example, in this particular area, I would consult the latest Rev. Procs. regarding EPCRS for guidance. If you want to dig in there, here are the cites: Revenue Procedure 2013-12, 2013-04 I.R.B. 313, modified by Revenue Procedure 2015-27, 2015-16 I.R.B. 914, and Revenue Procedure 2015-28, 2015-16 I.R.B. 920. If you're interested, turn your attention to the correction method where an employer doesn't allow an employee to defer the correct amount. This is called an operational error (i.e., the failure to follow the terms of the plan).

This is additional information, but it's not inconsistent with anything I said. In fact, in my first post, I specifically mentioned that there were options open to the employer to correct this situation, namely when I said "If the employer wants to facilitate your ability to enjoy your full 26 USC § 402(g)(1)(A) limit for 2015, there may be options open to the employer to allow that". I did not describe those options, but that is not an error. It just means that I provided a basis for further research, which was actually the stated purpose of the post.

Yes, it's additional info meant to demonstrate what I said above.

Again, let me say that I think we could be good friends. However, I think you would get more value out of my posts if you read them charitably.

I will do my best to read your future posts charitably.

Can we shake hands now?

[kkbmustang]

And I know I jacked up the quotes. :-)

[Cathy]

"May not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year" - For plan taxable years beginning in such calendar year: this means that if a plan has a fiscal year that is not the calendar year, the 402(g) limit that applies for the plan year is the 402(g) limit applicable in such calendar year.

Here I am not sure what you are trying to say, but let's just review the statutes and clarify the import of this language. Here is the full text of 26 USC § 401(a)(30):

In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year.

The first and second bolded part explains that this statute is concerned with "elective deferrals ... made ... during a calendar year" and with imposing a limit on "such deferrals" (namely, deferrals made during a calendar year), i.e., this limit is concerned with counting contributions during a calendar year. The language in the third bolded part is a bit tricky, and it might make you wonder why it uses the convoluted phrase "for taxable years beginning in such calendar year". However, the reason it uses that language is not because this provision is concerned with a year other than a calendar year, but rather because it is mirroring the language from § 402(g)(1)(A). Specifically, § 402(g)(1)(B) contains a table that specifies a dollar amount "For taxable years beginning in calendar year:". The requirement at 26 USC § 401(a)(30) then mirrors this language, i.e., it's asking us to look in that table. The function of mirroring that language is not that § 401(a)(30) is concerned with something other than a calendar year, but rather that it is referring to the table of § 402(g)(1)(B).

Sincerely, this is an incorrect interpretation. And I know it is because when I was a baby associate at a ginormous law firm, I had to write several research memos on this exact issue. This part has to do with which 402(g) limit the employer has to apply when the plan's fiscal year isn't the same as the employee's taxable year. ...

Unfortunately, and with respect, you are incorrect here. The language is already clear under the ordinary rules of statutory interpretation, but it turns out that some expository text published in the Federal Register by the Treasury department at 68 FR 40510, 40516 (July 8, 2003) also agrees with my interpretation of 26 USC § 401(a)(30):

For an applicable limit that is determined on the basis of a year other than a plan year (such as the calendar year limit on elective deferrals under section 401(a)(30)), the determination of whether elective deferrals are in excess of the applicable limit is made on the basis of such other year.

(Emphasis added.)

This expository text is technically not a regulation and might not be entitled to administrative law curial deference under the rule of Mayo Foundation v. United States, 562 US 44 (2011) and related cases, but nonetheless this Federal Register material is a much stronger authority than a memo you wrote. Please note, I am not trying to pick you on here -- I'm just saying I was not incorrect in anything I said. That applies to the rest of what I said too, but I don't think it would add anything else to quote and respond to everything else you said in your latest reply.

[MDM]

Cathy & kkbmustang: just want to thank both of you for what you bring to this forum.  I'm most definitely not a lawyer, so won't even pretend to arbitrate your discussion here.

If, however, either or both of you would care to comment on http://forum.mrmoneymustache.com/taxes/hsa-for-an-adult-child-great-benefit-if-one-qualifies/, that would be great.  Many of the details are in a bogleheads thread, but it seemed interesting enough to a bimodal distribution (the adult children and their parents) to make note of it here.

And thanks again.

[kkbmustang]

"May not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year" - For plan taxable years beginning in such calendar year: this means that if a plan has a fiscal year that is not the calendar year, the 402(g) limit that applies for the plan year is the 402(g) limit applicable in such calendar year.

Here I am not sure what you are trying to say, but let's just review the statutes and clarify the import of this language. Here is the full text of 26 USC § 401(a)(30):

In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year.

The first and second bolded part explains that this statute is concerned with "elective deferrals ... made ... during a calendar year" and with imposing a limit on "such deferrals" (namely, deferrals made during a calendar year), i.e., this limit is concerned with counting contributions during a calendar year. The language in the third bolded part is a bit tricky, and it might make you wonder why it uses the convoluted phrase "for taxable years beginning in such calendar year". However, the reason it uses that language is not because this provision is concerned with a year other than a calendar year, but rather because it is mirroring the language from § 402(g)(1)(A). Specifically, § 402(g)(1)(B) contains a table that specifies a dollar amount "For taxable years beginning in calendar year:". The requirement at 26 USC § 401(a)(30) then mirrors this language, i.e., it's asking us to look in that table. The function of mirroring that language is not that § 401(a)(30) is concerned with something other than a calendar year, but rather that it is referring to the table of § 402(g)(1)(B).

Sincerely, this is an incorrect interpretation. And I know it is because when I was a baby associate at a ginormous law firm, I had to write several research memos on this exact issue. This part has to do with which 402(g) limit the employer has to apply when the plan's fiscal year isn't the same as the employee's taxable year. ...

Unfortunately, and with respect, you are incorrect here. The language is already clear under the ordinary rules of statutory interpretation, but it turns out that some expository text published in the Federal Register by the Treasury department at 68 FR 40510, 40516 (July 8, 2003) also agrees with my interpretation of 26 USC § 401(a)(30):

For an applicable limit that is determined on the basis of a year other than a plan year (such as the calendar year limit on elective deferrals under section 401(a)(30)), the determination of whether elective deferrals are in excess of the applicable limit is made on the basis of such other year.

(Emphasis added.)

This expository text is technically not a regulation and might not be entitled to administrative law curial deference under the rule of Mayo Foundation v. United States, 562 US 44 (2011) and related cases, but nonetheless this Federal Register material is a much stronger authority than a memo you wrote. Please note, I am not trying to pick you on here -- I'm just saying I was not incorrect in anything I said. That applies to the rest of what I said too, but I don't think it would add anything else to quote and respond to everything else you said in your latest reply.

I just can't even. I spent what felt like forever drafting a response to you with cites and my iPad auto shut down and I LOST IT ALL. Which really just pisses me off, so I'm back to the laptop. This will be abbreviated, but please don't take my being short in this response as anything other than agitated that I lost all of my work.

First, you cited the Regulations that go along with the catch-up contribution rules. The expository text you pointed to is just restating the original requirement in the context of the newly added catch up contributions in Section 414.

Let me try this again. The provision in 401(a)(30) is a plan limit provision. And what I mean by that is this: 401(a) includes all of the requirements a plan must meet in order to get preferential tax treatment. There are two moving parts here: the deduction by the employer and the recognition of income by the employees.

DEDUCTION BY EMPLOYER
An employer can deduct the contributions it makes for the benefit of plan participants (subject to the limit in 404). Even though the employer is getting a current deduction, the IRS doesn't get to tax the amounts contributed to the plan until they get distributed to participants. But employers have to make sure the plan satisfies all of the requirements in section 401(a), and the corresponding trust with 501.

You pointed to the provision in 401(a)(30) and said it was not a plan limit. There also happens to be a corresponding limit on the individual, but it is set forth in 402(g).

Treas. Reg. §1.401(a)–30 Limit on elective deferrals. (emphasis added)
(a) General Rule. A trust that is part of a plan under which elective deferrals may be made during a calendar year is not qualified under section 401(a) unless the plan provides that the elective deferrals on behalf of an individual under the plan and all other plans, contracts, or arrangements of the employer maintaining the plan may not exceed the applicable limit for the individual’s taxable year beginning in the calendar year. A plan may incorporate the applicable limit by reference. See §1.402(g)–1(e) for rules permitting the distribution of excess deferrals to prevent disqualification of a plan or trust for failure to comply in operation with section 401(a)(30). The term ‘‘applicable limit’’ has the meaning provided in § 1.402(g)–1(d).

So, you see here that this is applicable to the PLAN. The amount of the limit is separately provided in 402(g).

If 401(a)(30) was not talking to PLANS, there would be no need for a correction procedure for situations in which the PLAN allowed a participant to make excess elective deferrals. See here: http://www.irs.gov/Retirement-Plans/401(k)-Plan-Fix-It-Guide-Elective-deferrals-exceeded-Code-§402(g)-limits-for-the-calendar-year-and-excesses-were-not-distributed

Or this:
"If the total of a plan participant’s elective deferrals exceeds the limit under IRC Section 402(g), to avoid failing IRC Section 401(a)(30), the excess amount plus allocable earnings must be distributed to the participant by April 15 of the year following the year of deferral. Excess deferrals not timely returned to the participant are subject to additional tax." See here: http://www.irs.gov/Retirement-Plans/401%28k%29-Plan-Fix-It-Guide-Elective-deferrals-exceeded-Code-§402%28g%29-limits-for-the-calendar-year-and-excesses-were-not-distributed

INCOME RECOGNITION BY PARTICIPANTS
Participants begin to recognize income when plan assets are distributed to them. Obviously, the length of this delay is limited by the required beginning date rules, but you could be looking at decades. The IRS won't get tax revenue until some time way in the future. Ask yourself, why would the IRS agree to this? Because they want to encourage retirement saving. So, they allow individuals to set aside money in a plan on a tax deferred basis. But, the IRS is only willing to be so generous. They put in place a limit to the amount they can shield from tax. And this limit is set out in 402(g).

1.402(a)-1: Taxability of Beneficiary Under Trust.
Big picture, individuals are subject to federal income tax at rates set forth in Sec. 1, they must include in gross income all of the items set forth in Sections 61 to 68. Items specifically included are set forth in various sections, including 72. Items specifically excluded are in sections beginning with 100.

So that's it. I'm not saying anything further. If you want to disagree, it's a free country, have at it.

[Cathy]

Let's review what happened here:

• In my third post in this thread, I claimed that the limitation in § 401(a)(30) is calculated on the basis of a calendar year. (My post recognised that § 401(a)(30) is a requirement for plans, as evidenced by the fact that my post introduced this requirement with "A trust shall not constitute a qualified trust unless...".)
• You then replied to claim I was wrong because, according to you, the limitation in § 401(a)(30) is calculated on the basis of a plan year.
• I then responded with a very clear authority confirming that the limitation in § 401(a)(30) is calculated on the basis of a calendar year, i.e., that I was right and you were wrong, at least on that particular point.
• You have now posted a reply which is completely irrelevant to the above dispute, and yet claims I am somehow wrong ... about something ... although you don't identify any particular claim that I made which you say is wrong.

I think if you look at the literal words of what I've actually said, you'll see there are no errors. You seem to want to argue against things I didn't actually say. (For example, your post above says I "pointed to the provision in 401(a)(30) and said it was not a plan limit", but I never claimed such a thing -- indeed, I explicitly said the opposite in every post in this thread.) Meanwhile, you refuse to admit when you actually made a mistake yourself (see above). There's really nothing wrong with making mistakes. Everybody makes mistakes from time to time, even competent counsel. When I make mistakes, I admit it gracefully and move on. I would suggest you try the same next time.

[charis]

Haha.  I just read saw this after it was linked to in another thread.  It's hilarious that kkbmustang takes issue with Cathy's tone and thinks her writing raise red flags.  You both write and argue like lawyers, and if I had to guess, maybe Cathy was a law clerk at some point, maybe at the federal level.

[cbender49]

The responses here turned into a much more detailed discussion (argument?) than I was hoping for, so I lost sight of the topic. In case anyone is interested, I spoke to our plan administrator and found I should be able to contribute the full $18k in pretax contributions from my 2015 wages, regardless of what ING/Voya says. I should still max out the plan before the end of the year and have funds left for the IRA so everything is gravy.

[Wile E. Coyote]

Glad to hear it.  I never checked back here and missed all the fun.  It seemed that things really got out of hand.  This should have been a relatively straight forward discussion.  If I understood you correctly, your W-2s were all correct, your employer was fine with everything, but ING was trying to argue that the 2014 elective deferral of $6,000 that it got from your employer after 1/1/2015 was for 2015.

The Department of Labor establishes the guidelines for when deposits of an employee's elective deferrals must be made.  Under these rules, it is common for employers to deposit amounts after the end of the year that are on account of the year just ended.  The fact that the amounts weren't deposited with ING until after 1/1/2015 does not mean that they must be allocated to 2015.  The employer should have designated the amount deposited after 1/1/2015 as on account of 2014, and ING should have accepted that.

I am glad that it worked out for you in the end.