Is it possible to reduce the plan's 401 (k) deferral limit mid-year. Currently, a plan has a deferral limit of 80% for HCEs and the employer wants to reduce the limit to 5% for 2009. This would mean a forced reduction of deferrals for some participants for the balance of the year. Would this be a cutback issue?

Yes, the deferral limit can be decreased prospectively during the year. With a prospective change, there is no cutback issue.

Note, the deferral limit not being consistent for the entire year will affect the determination of catch-ups. 1.414(v)-1 has a section on how to handle it if a plan imposed limit changes during the year.

Thanks for heads-up on the catch-ups !