BG5150 Posted February 28, 2019 Share Posted February 28, 2019 HCE defers $6,000 for 2018. He's over 50. Employer makes a $55,000 profit sharing for him. Total Annual Additions $61,000. $6,000 is catch-up. What do I put in the ADP test? $6,000 or $0. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Mr Bagwell Posted February 28, 2019 Share Posted February 28, 2019 I'm going to say the 6,000 goes into the ADP test. I'd say the 6k deferred had no failure to make it be catch-up. I'd say the failure occurred with the 55k profit sharing. Link to comment Share on other sites More sharing options...
Tom Poje Posted February 28, 2019 Share Posted February 28, 2019 I'd lean toward zero. he failed 415 limit so all deferrals are treated as catch-up. the IRS has indicated (somewhere) that yes you can allocate a larger profit sharing thus creating a 415 violation if you have catch up room to spare. Link to comment Share on other sites More sharing options...
BG5150 Posted February 28, 2019 Author Share Posted February 28, 2019 Who's gonna break the tie? I will be adding the twist a little later.... QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Mr Bagwell Posted February 28, 2019 Share Posted February 28, 2019 I will. Tommy steps up and wins the game. His analysis is correct. My flaw was somehow thinking that part of the PS was recharacterized..... Deferrals get recharacterized. I knew the participant could get to 61k, but I didn't show my work... (algebraic joke) Link to comment Share on other sites More sharing options...
BG5150 Posted February 28, 2019 Author Share Posted February 28, 2019 Ok, here is the twist. The ADP test is run with the 6,000 in it and it fails in January and there are refunds. In August they decide to allocate a profit sharing as mentioned above. Now, if those deferrals are not in the ADP test, it passes. Do I have to get those refunds back from people? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
justanotheradmin Posted February 28, 2019 Share Posted February 28, 2019 I'm guessing the refunds were to people other than the person with the $6,000 eligible for catch-up? Otherwise if if failed in January, and that person was the one allocated the refund, it would have been reclassified as catch-up at that point and not actually distributed. I would say yes, to try to get the refunds back, unless those participants are otherwise eligible for distributions and want to keep the money. I'm a stranger on the internet. Nothing I write is tax or legal advice. I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say? Link to comment Share on other sites More sharing options...
Kevin C Posted February 28, 2019 Share Posted February 28, 2019 Catch-ups triggered by the 415 limit are not included in the ADP test. Quote 1.414(v)-1(d)(2) Contributions not taken into account in application of ADP test—(i) Calculation of ADR. Elective deferrals that are treated as catch-up contributions pursuant to paragraph (c) of this section with respect to a section 401(k) plan because they exceed a statutory or employer-provided limit described in paragraph (b)(1)(i) or (ii) of this section, respectively, are subtracted from the catch-up eligible participant's elective deferrals for the plan year for purposes of determining the actual deferral ratio (ADR) (as defined in regulations under section 401(k)) of a catch-up eligible participant. Similarly, elective deferrals that are treated as catch-up contributions pursuant to paragraph (c) of this section with respect to a SEP because they exceed a statutory or employer-provided limit described in paragraph (b)(1)(i) or (ii) of this section, respectively, are subtracted from the catch-up eligible participant's elective deferrals for the plan year for purposes of determining the deferral percentage under section 408(k)(6)(D) of a catch-up eligible participant. If that means the ADP test now passes, the refunds previously paid are overpayments and need to be corrected under EPCRS. Luke Bailey and duckthing 2 Link to comment Share on other sites More sharing options...
Luke Bailey Posted February 28, 2019 Share Posted February 28, 2019 I agree with Kevin C. Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
Below Ground Posted February 28, 2019 Share Posted February 28, 2019 There are 2 type of Catch-up Contributions. Values related to exceeding plan or statutory limits, and amounts used to recharacterize excess amounts. The former are removed from testing. The latter are created by testing. Luke Bailey 1 Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing? QPA, QKA Link to comment Share on other sites More sharing options...
austin3515 Posted March 5, 2019 Share Posted March 5, 2019 Ha! No good deed goes unpunished. Too bad your client didn't procrastinate like mine do. Sometimes it works out! Austin Powers, CPA, QPA, ERPA Link to comment Share on other sites More sharing options...
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