Automate a Supplemental Savings Plan for Wages Over the Qualified Plan Limit

  • by Clay Molinari, SAP HR Consultant, C&C Savant, Inc.
  • June 19, 2009
Learn the configuration of a special benefit plan, wage types, and a rule in payroll that makes contributions to a supplemental savings plan possible even in the middle of a pay period.
Key Concept

The US Internal Revenue Service prohibits contributions to a qualified savings plan from earnings that exceed the section 415 compensation limit. Some companies allow employees who earn wages in excess of this limit to make a similar contribution to a non-qualified plan. The IRS defines several different types of qualified plans in publication 560. A non-qualified plan is one that does not satisfy the IRS rules for any of these qualified plans. Contributions to a non-qualified plan are normally pre-tax and the plans do have some tax advantages. You need to establish these plans through an Employee Retirement Income Security Act (ERISA) attorney.

When it comes to savings plans, most of us are familiar with qualified savings plans, particularly the 401(k). A rule of 401(k) plans is that no one person may contribute more than $16,500 plus $5,500 catch up on a pre-tax basis this year. Another rule is that each employee may only contribute to their qualified plan from the first $245,000 of earnings this year. These dollar amounts are periodically adjusted by the IRS. Many companies want to allow employees whose earnings exceed the limit to make contributions to a non-qualified plan. Non-qualified plans can be almost any type of salary deferral agreement the company wishes to have and are therefore not subject to the same restrictions. Most companies require their employees to wait until after they have reached the earnings limit on the qualified plan before they start participation in the non-qualified plan.

Standard SAP configuration supports the qualified limit. A benefit plan marked as “qualified” on the general benefit plan screen (V_5UBA_C) automatically stops calculating deductions once an employee has reached the limit he or she can contribute in one year. The limit is stored on table T511P as a value for constant 401KS. Here’s the problem. If your employee has reached the limit and wants to start a non-qualified plan in the middle of the year, there is no standard way to do this. Benefits administrators facing this problem often establish a manual review process that allows them to recognize the pay period in which an employee exceeds the limit. Enrollment in the supplemental plan is then manually started for the next pay period. Unfortunately, this solution requires constant attention from someone and it causes these employees to miss out on part of their contribution because employees rarely hit the limit exactly at the end of a pay period.

The solution proposed in this article enables supplemental plan contributions to automatically start in the middle of a pay period. They are deducted from each dollar of earnings that exceeds the limit. Note that this article assumes basic knowledge of benefits including the creation of contribution variants. All of the contributions here are pre-tax contributions. The salary is deferred until later and the taxes are due later. There are no limits on after-tax contributions because there is no tax advantage for after-tax contributions. After-tax deductions are no different than a union dues deduction.

Clay Molinari

Clay Molinari has 20 years of experience in the IT industry and has been working as an SAP HR consultant since 1997. He is currently president of C&C Savant, Inc., an SAP consulting firm that specializes in combining standard SAP configuration and custom ABAP programming to help its clients solve unique or complicated requirements.

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