fiscal year, 415 and catch-up

[Golgi]

A new plan starts 4/1/2009 - 3/31/2010. HCE defers $20,500 during the period 4/1/2009 through 12/31/2009. HCE defers $15,000 between 1/1/2010 and 3/31/2010. Is it possible to allocate a profit sharing contribution of $24,500 such that the employees' total allocation would be $60,000 of which $5500 was catchup for 2009 and $5500 was catchup for 2010?

[BG5150]

What is the plan's limitation year? Usually it is the 12 months before the last day of the plan year.

[Golgi]

What is the plan's limitation year? Usually it is the 12 months before the last day of the plan year.

The limitation year is the plan year.

[austin3515]

Wow, very interesting question...

BUT, you would not get the full catch-up limit for 2009 for sure, because the 402g/401a30 was only exceeded by $4,000.

Other than what I've pointed out, I can't see any problems. Catch-ups are NOT counted for 415 purposes. If you were running an ADP test, you could clearly have the full 11,000 (5,500 per year) excluded from the test. Why not 415 as well?

I'll be curious to see what the outcome of this is!

[cpc0506]

A new plan starts 4/1/2009 - 3/31/2010. HCE defers $20,500 during the period 4/1/2009 through 12/31/2009. HCE defers $15,000 between 1/1/2010 and 3/31/2010. Is it possible to allocate a profit sharing contribution of $24,500 such that the employees' total allocation would be $60,000 of which $5500 was catchup for 2009 and $5500 was catchup for 2010?

I would think that you can ONLY re-classify any portion of your 2010 Salary deferral amount as 'catch up' if the plan fails the ADP Test as the HCE has not exceeded the standard Salary Deferral limit for 2010. Had the HCE deferred $22,000 between 1/1/2010 and 3/31/2010. then I might agree.

Also, I do agree that your 2009 catch up is only $4,000 as the standard SD for 2009 was $16,000 (unless other funds were re-classified due to a failed ADP Test).

Anyone agree with this assessment?

[austin3515]

ADP and 402(g) is only one way to get a catch-up; there's a couple more, one of which is going over 415. So as soon as you go over the 415 limit, you get yourself a catch-up contribution. So in a calendary year plan, someone defers $10,000 and you make a profit sharing contribution of 44,500, total additions are 54,500, and $5,500 of 401k is reclassed as catch-ups.

[Golgi]

The plan is a safe harbor so there is no ADP test. 402g and ADP are not the only ways to result in catch-up. Exceeding the 415 limit is another which is what I was getting at. What I was wondering was can we allocate an additional $11,000 in profit sharing for the plan year to force the catch up for 2009 and 2010.

[austin3515]

You're not forcing the catch-up for 2009; that's a done deal. You;ve got $4,000, since that's what you exceeded 402g by. There is no way to get the full 5,500 for 2009. I'll wait to hear from others on how they feel about going over 54,500.

[Kevin C]

I agree with Austin.

The rules you need are in 1.414(v)-1. The catch-up limit applies to the participant's taxable year. He exceeded 402(g) in 2009 and has $4,000 in catch-ups for 2009. If the plan allows him to get a $23,000 PS contribution for the plan year ending 3/31/2010, that causes $5,500 of his 2010 deferrals to be 2010 catch-up as of 3/31/2010. Catch-ups don't count against 415, so the contributions counting towards 415 are:

4/1/2009-12/31/2009 $20,500 (deferrals) -$4,000 (catch-up 2009) = $16,500

1/1/2010 -3/31/2010 $23,000 (PS) + $15,000 (deferrals) - $5,500 (catch-up 2010) = $32,500

Total 415 annual additions for the plan year are $16,500 + $32,500 = $49,000.

Total allocations, including catch-ups, for the plan year are $20,500 + $23,000 + $15,000 = $58,500.