Why is the 401(k) plan that works in concert with a defined benefit plan a Deferral Only Plan?
The defined benefit plan usually has a contribution requirement greater than 25% of compensation considered for deductions. 401(k) deferrals and catch-up contributions are not considered in the 25% limit on deductions. Therefore there are no restrictions on deductions. If a profit sharing contribution had been made in addition to the defined benefit contribution, the profit sharing contribution would not be deductible and a 10% excise tax would be imposed by the IRS.
