“If a person elects not to participate in the one-time irrevocable election to make mandatory contributions, can he or she make elective deferrals to the plan in the future? If not, would this restriction conflict with the universal availability rule, or is this another category of participant excluded from universal availability?”
Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:
The Experts are always delighted to respond to questions from our readers about mandatory contributions or any other topic!
In answering this question, you need to keep in mind that elective deferrals, and employee mandatory contributions, though both deducted from salary, are two separate and distinct contribution types under the law. The universal availability rules apply ONLY to elective deferrals, NOT to mandatory contributions.
Thus, in your scenario, if an individual declines to make a mandatory contribution pursuant to the one-time irrevocable election, he/she may not make mandatory contributions to the plan in the future (or receive the related employer contribution). However this has NO impact on the elective deferral portion of the plan. Under the universal availability rule, the participant may commence elective deferrals to the plan at any time, even if he/she declined the one-time irrevocable election to make mandatory contributions.
Of course, these elective deferrals will be subject to the 402(g) limit ($17,500 in 2013 and 2014, $23,000 if age 50 or older), whereas mandatory contributions are not subject to the limit and could have been made in addition to the $17,500/$23,000 in elective deferrals had the participant elected to make mandatory contributions. This was a lost contribution opportunity that can never be recaptured, since the mandatory contribution election is irrevocable.
Keep those questions coming, and the Experts would like to take this opportunity to wish all of our readers a joyous Thanksgiving Holiday!
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.