ABC Company maintains a 401(k) plan that includes the following provisions:
- It operates on a calendar year.
- Compensation is defined as W2 wages with pre-tax deferrals added back and no exclusions.
- Eligible participants can defer up to the IRS limit $18,500 + $6,000 for those age 50 or older (2018 limits, indexed for inflation)
- The company provides a match equal to 100% of the first 5% deferred by each participant, calculated using compensation and deferrals for the full year.
In addition to regular compensation, ABC pays performance-based bonuses at the end of each calendar quarter.
While compiling the year-end census, it was noted that the overall deferral percentages did not appear quite right for certain employees based on their elections. On closer review, it was determined that employees who received quarterly bonuses did not have any 401(k) deferrals withheld from those amounts. With no deferrals withheld, ABC also did not make the corresponding matching contributions.