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Catch up contributions and a fiscal year end plan


Guest EPS2

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Guest EPS2

I have a 6/30 fiscal year end plan that has one HCE who is over 50, and wants to contribute the maximum.

catch up contributions are based on the calendar year plan.

There is no deferral limit on the plan level

The payroll service shows a $192.31 catch up contribution for each payroll on the 401(k) payment check stub they send in (26 in the year)

For the 2007 calendar year, the HCE contributes $18,134.83

while the payroll service shows $4,423.00 as catch up, the actual 402(g) overage is $2634.83

Do I use the $4,423.00 as catch up; recharacterizing $1,788.17 as catch up for ADP test (test doesn't pass for pye6/30/08)

-or-

Do I disregard what the payroll service shows on the check stub as catch up and only use the $2634.83, even though the PYE 6/30/08 test could fair better?

How does catch work when you need to recharacterize for ADP testing and you're on a fiscal year end plan?

Any guidance would be appreciated.

Thank you.

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Guest EPS2
Did the plan pass the ADP test at 6/30/2007? If it failed, that will affect the catch-up determination.

There were no HCE's for pye 6/30/07, so yes, the test passed.

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We had a very long discussion on this topic that ended a couple of months ago. There was some disagreement about some of the details. I’m sure if anyone disagrees with my response, they will feel free to join the discussion.

The timing for determining catch-ups depends on the limit triggering the catch-ups. Catch-ups from an ADP test failure are determined at the end of the plan year, 6/30 in this case. Catch-ups from the 415 limit would also be determined at 6/30. You did not mention 415, so I’m assuming it does not come into play here. Catch-ups from the 402(g) limit are determined at the time the deferrals are made. You will want to take a look at reg 1.414(v)-1. Examples 5 & 6 are non-calendar year plans.

Ignore the payroll company’s catch-up number.

If the HCE’s deferrals are roughly the same each month, he will have deferred about $9,100 for 2007 by 6/30/2007. With no ADP failure at 6/30/2007, he has not yet used any of his $5,000 catch-up limit for 2007.

As he continues to defer for 2007, once his deferrals for the year-to-date exceed $15,500, his deferrals become catch-ups as they are contributed. By 12/31/2007, he has catch-ups of $2,634.83 that are disregarded for ADP testing at 6/30/2008.

If you have an ADP test failure at 6/30/2008, his refund applies towards his 2008 catch-up limit, to the extent he has not already used up his 2008 catch-up limit by exceeding 402(g). If he deferred from 1/1/2008 through 6/30/2008, then his catch-up from the ADP test is considered to be part of his year-to-date 2008 deferrals. If he did not defer from 1/1/2008 – 6/30/2008, the refund still applies towards his 2008 catch-up limit.

Suppose he defers $10,250 from 1/1/2008 – 6/30/2008 and his 6/30/2008 ADP refund is $2,000. Then $2,000 of his 2008 deferrals get reclassified as 2008 catch-up. At 6/30/2008, his 2008 deferrals that count towards his 402(g) limit are $8,250 ($10,250 – 2,000). Then he defers another $10,250 from 7/1/2008-12/31/2008. His first $7,250 ($15,500 - $8,250) of deferrals from 7/1/2008 - 12/31/2008 are regular deferrals. The next $3,000 of deferrals above that would be 2008 catch-up and excluded from the 6/30/2009 ADP test.

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What Kevin said with the one small, and irrelevant to this particular case, annotation: if there were no deferrrals in a 6 month period ending on 6/30/xx and there were ADP excesses at that point (brought about, obviously, from deferrals in the 6 month period ending 12/31/xx-1), it is an open debate whether those amounts should be considered xx catchups or xx-1 catchups.

I'm not suggesting we are going to come to a consensus on this issue in this thread, when we couldn't do so in a prior thread.

I just wanted the fact that there is no consensus on this issue noted.

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I agree with Kevin. If your record keeping software can't handle fiscal years you may have to track HCE's via a spreadsheet (if you ever have HCEs in the plan) in order to accurately look at each 6 month period to get your calendar year deferrals and determine catch up using the calendar year 402g limit and then manually adjusting fiscal year total deferrals to exclude any amounts above that were reclassified as catch up already giving you the actual deferral percentage.

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