Roth 401(k) Company Match

Yea, I presented this to Lawson, there response was "work around it". We have NewYork Life telling us we are not doing it right and that Lawson should handle it. I presented statements from our law firm to Lawson telling them that they are not compliant with IRS regs and there response is below. I am a developer so I don't know all the ins and outs here like you might. If you would like I can provide you with more info. Send me a message and I can share more with you.

From Lawsons help center:

If employees are allowed to elect a percentage non-qualified deduction and percentage 401k deduction, one manual option for handling the situation would be to run PR140 twice in the payroll cycle the first PR140 would calculate the amount of the employees percent non-qualified deduction. The next step would be to subtract the amount of the non-qualified contribution from the employees regular pay by adding a regular time record for the amount of the non-qualified contribution as a negative and then add the same amount back with a pay code that would be eligible for the non-qualified plan but not for 401k.Finally, you would run PR140 a second time to calculate both the non-qualified deduction and the 401k deduction (whose eligible earnings would now be reduced by the amount of the non-qualified deduction).
Example
Total Salary = $2,000 per pay period. Non-Qualified election = $500
Time Records
Reg 80 2,000.00
Reg - 500.00 (included in 401k pay class pay but not NQL pay class)
NQL +500.00 (included in NQL pay class pay but not 401k pay class)
401k deduction eligible earnings now equal 1,500.
 

Thank you. Unfortunately with Lawson, that always seems to be their answer. Is this how you are handling it? We are testing right now, but I built the plan to be aftertax, but am wondering if we make adjustments on the back end to change the company portion to pre-tax prior to sending it to our 401(k) vendor if there will be any adverse tax implications on the employee's paycheck.

No, our payroll staff says it is easier to do it manually. I don't really know what they do. I do know our management is contemplating going to war with Lawson over this issue.

We have a 401k plan that allows both the pretax and Roth deductions and a company match. I don't think our vendor cares how we assign the taxablity of the deduction in Lawson. They will be taxed appropriately when they come out of the plan.

Our bigger issue was not overmatching which was going to be the case if we created two separate plans. We were able to get them into one plan using a work around.

There are several enhancement requests out on mysupport.lawson.com regarding the issues with Roth plans that include company matches. I have been in contact with Lawson regarding this and do know they are working on a solution.

Here is a little more info.

The Internal Revenue Code does not allow it. NYL also said they will do whatever we ask them to do, however, they we will need to submit to the IRS for a new determination letter in January, 2011 and we will not get it if this not corrected.
The regulations under Sections 415, and 414(s) (see specifically, IRS code: 1.415-2(d)(3) and, for nondiscrimination, 1.401(a)(4)-12) discuss the
requirement to exclude compensation deferred into a nonqualified plan.

I don't want to hijack this topic.   However, we really have issues with the way the system handles all 401(k) related items.   We have issues with the fact that Lawson does not allow for percentages based on the DEDUCTION it is based on the pay...   We have something like 100% of the first 4 percent and 50% of the next 5%....   Lawson can only do this based on the associates pay.   This means that the last check when an associate meets limits it might actually stop the employee deduction and keep matching on the match - even though they should not get a full match on that check.   (Lawson said that they know and we should manually adjust the last payroll - this means we have to run a report for the first PR140 and find anyone that is JUST hitting limits to manually adjust and then adjust and rerun.)

We have also seen some issues around limits and how it can be configured because it does not work as well as I think it should...   Scares me EVERY time someone asks about ROTH because we are already manually tracking two buckets of 401(k) - a third would be very difficult.

 

I agree with you on limits issues.

I had an idea about your match issue. It may not be ideal but it may be better than what you do today. We match our employee's deduction and have our company match linked as a match deduction on the PR05 so that it takes 50% of the employee's 401k deduction. Fortunately, it is a simple match unlike your example. I was thinkin that you could have two plans, though. One set up to accept contributions up to 4 percent with a 100% match tied to it and the other set up to match 50%.

Just a thought and I am sorry if I've oversimplified it.

Actually when we had a straight match of 50% on 6% it was easy and Lawson worked okay...   However, when we changed to the 100% then 50% Lawson does not allow that type to be linked to the deduction it has to be linked to the pay.   This makes the check that they meet their employee limit an issue because it does not stop the company match on that check at the same time as the employee contribution.

For example if the last check hits the individual limit at half the pay the match continues for the entire pay.  (Giving too much match - when we changed to stop the deduction when one of the limits is hit it stopped all of my highly compensated associates too early and they were unable to max out their individual contribution.   

Benefits felt it was way too unfreindly to associates.   *Guess we just want it to be a little smarter in handling the limits.