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Author: PMcMullenCT Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25247  
Subject: Article on % 401K Limits Date: 8/15/2001 12:54 PM
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Here's a link to a good article describing why many 401K plans limit employee contributions to 401K plans as a percentage of pay, and how these limits may be affected by the new tax changes:

"A second percent-of-pay limit will also be raised under the new law. Your employer gets a tax deduction on the contributions it makes to your defined-contribution plans. The current limit is 15 percent of eligible payroll for a profit-sharing plan and 25 percent when the employer has both a profit-sharing and defined-contribution pension plan. Eligible payroll is the amount of compensation paid to eligible employees during the plan year that is included for plan contribution purposes. The employer deduction limit for profit-sharing plans is complicated by the fact that a 401(k) comes under the rules for profit-sharing plans. As a result, employee pre-tax contributions made to a 401(k) must be included in the 15 percent limit for the employer. (This is not done on an individual basis; it is an average for all employees.)"

http://401k.mpower.com/commentary/feature/feature_073101.xsp
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