Mandatory contributions count against the Section 415 annual additions cap

Groom Law attorneys have a direct answer to a question that compliance teams face: yes, mandatory employee contributions count against the Internal Revenue Code's annual additions cap. Senior counsel Kimberly Boberg, principal Kelly Geloneck, associate Emily Gerard, and principal David Levine supplied the answer in the latest installment of PLANSPONSOR's Ask the Experts series.

The guidance hinges on a distinction between two limits. Section 402(g) caps what a participant electively defers from pay each year. Section 415 caps the annual additions allocated to a participant's account, combining employee contributions, employer contributions, and forfeitures. Mandatory contributions, the Groom team writes, are employee contributions, and the code does not carve them out of the annual additions calculation. They fall on the 415 side of the line.

The confusion is understandable. The two limits govern the same accounts, appear on the same compliance calendars, and show up in the same testing software. Certain amounts are excluded from annual additions, the Groom team notes: rollover contributions and eligible catch-up contributions. Mandatory contributions are not on that list. A participant who must contribute as a condition of plan participation therefore builds annual additions through those mandatory dollars just as employer matches do.

The practical weight rests on plan sponsors and the administrators who run compliance testing. A plan with mandatory employee contributions must count them in the 415 test even when the participant defers nothing voluntarily. A worker can sit well under the 402(g) cap and still approach the 415 ceiling because mandatory dollars occupy the same headroom.

The guidance leaves correction options unstated. It does not explain what a plan should do once mandatory contributions push a participant over the 415 cap. For sponsors, the operative sentence is the one that puts mandatory contributions inside the 415 test. The 402(g) limit is a different ceiling, and it offers no relief here.