Catch up contributions

[Guest pensionadmin]

Are you having catch up eligible participants make an election (enroll) for the opportunity to make catch up contributions? Or are you merely letting participants know that the plan allows for catch up contributions and under what circumstances they will become catch up contributions? We're unsure how to handle, especially the plan basis deferral % limit. Let's say the limit is 10%. Can a catch up eligible participant who makes $100,000 then elect a deferral of 11%? This would result in $10,000 in regular deferrals subject to the ADP test and $1,000 in catch up contributions outside of the ADP test. Or does the catch up eligible participant need to make a separate election beyond the 10% and elect a 1% (or $1,000) catch up contribution?

[Guest earthy]

The IRS has yet to issue ordering guidance on how to treat and track the additional contributions. Since this is a new Code Section - 414(v) - the plan itself should be able to retroactively amend to permit these contributions along with the conditions.

At this point, I would simply make sure that you have each participant's date of birth and let all of the participants age 50 or above as of 12/31/2002 know that there is the potential to make additional elective deferrals during 2002. I don't think there is a need for a per se "election" to be made by the participant.

Remember, the plan imposed elective deferral 402(g) limit will still apply in 2002. So, expanding on the example you cited and assuming your participant only earned $80,000 in 2002, the most they could contribute in 2002 (provided they are above age 50) would be $9,000. re: ($80,000 * 0.10) + $1,000 = $9,000.

If the plan does not restrict elective deferrals to a stated percentage and the participant is above age 50 and earns $80,000, they should be able to defer the full $12,000. re: $11,000. + $1,000. The ADP test and its outcome should be of no consequence unless the participant is an HCE in 2002.

earthy

[MWeddell]

While the proposed catch-up regulations didn't squarely address this, one does not need a separate catch-up election. If someone's normal cash or deferred election causes one to exceed the 402(g) limit, one just lets the participant keep contributing an extra $1,000 in 2002 if the participant is born in 1952 or earlier. However, in your example with a 10% maximum contribution percentage, you likely need to offer a separate election of up to $1,000 for those contributing 10%.