Question on how to handle United States 401-K catch up deduction

Question

Just have a question here to see how other Oracle customers in the United States might be handling the 401-K catch up deduction. For 2009, an employee can deduct up to $16,500 in pay as 401-K deductions. That is the limit for this year as set by US law and IRS regulations. However for employees who are age 50 and over, for 2009 they can deduct an additional $5,500 for 401-K, making their total limit for the year $22,000. These limits can change from year to year. Since not all employees are eligible for this catch up amount, you cannot just set one limit amount for 401-K. The way we have attacked it is that we created two elements, one for 401-K and one for 401-K catchup. That mostly works pretty well. The issue we run into is that when an employee hits the limit on the main 401-K deduction, payroll does not automatically roll over and start the catch up deduction, in the same payroll run. In the next payroll run, the catch up deduction will kick in and the employee's paycheck is back to normal. But it is confusing for the employees who hit this situation (which is a small number) because their paycheck ends up a higher amount in the week that they hit the limit on the main 401-K deduction. How have other customers handled setting up the 401-K catch up deduction? Have you been able to get payroll to continue the normal weekly deduction for 401-K even when the employee hits the yearly limit for the regular 401-K deduction? If so, would be curious to hear how you have configured your system to do this. Thanks for your time and assistance.
John Dickey

Answer 1

Okay, after doing a lot of research and studying, I am beginning to see a way to make this work. We will have to find a way to test this out in a development environment. It looks like that if I set the catch up element entry percentage amount to NULL (blank), then set the Take Overlimit Catchup value to ALWAYS, then it may work the way that I want it to. If I am reading this right, at the start of the year only the base element percentage will have a calculation done and a deduction taken (let me emphasize that I am talking about a SEQUENTIAL value for the catch up processing field value). In the period that the employee hits the base limiit, the base element percentage will be fully calculated, with the amount in excess assigned to the CATCH UP ELEMENT. The trick here, that I was failing to realize at first, was that the take overlimit amounts always goes to the catchup element. The next week all of the base percentage amount is overflow and goes to the catch up element. You keep adding to the catch up element amount until you hit the catch up limit. There is NEVER a calculation of an catch up element amount, since the percentage is NULL in that element entry. The only element that ever gets an amount calculated for it is the base element. There is a document, document id 733997.1, that gives an explanation and example of how this Take Overlimit Catchup function works. Will see what happens whenever we can get around to testing this out.
John Dickey