PLan year higher defrral limits apply to.

[Guest Thornton]

A 401(k) plan has a fiscal 5/31 plan year. For the plan year ending 5/31/02, is the 402(g) limit $11,000? It seems that there is a difference between cost of living and statutory increases, or does this just apply to the 415 limits?

Second question: For participants age fifty or more by December 31, 2002, can a catchup contribution be made for the 5/31/02 plan year? I read the proposed regs as yes, but am interested in what others think.

[BFree]

The 402(g) limit is based on the calendar year. In recent years, the limit has risen based on cost of living, but in $500 increments only.

I believe the general consensus here is "yes" to the fiscal-year catch-up question.

[Tom Poje]

in regards to deferral limit, I would add this thought as to remember the rule:

you file your individual tax forms with all your w-2 attached.

the govt is going to add up the deferral amounts to see if you exceeded the 402(g) limit. this counts for all plans for all employers, so you know that it doesnt matter if the plan is fiscal year. your w-2's are on a calendar year basis.

as for the catch-up, the only possible caution:

plan has to allow for catch-ups. you can't simply make them. therefore, I think you have to amend the plan by 5/31/02 as well.

[Guest RJM]

Tom, can you carry this one out a little further.

Assume 1) the Plan (5/31 pye) was amended 1/1/02 to allow Catch-Up Contributions; 2) the Plan limits Participants 'regular deferrals' to a maximum of 10% of gross Compensation; and 3) NHCE Participant X wants to defer more than the 10%, i.e., make the "Catch-Up Contribution". How much can X defer by 5/31/02? By 12/31/02?

Thanks!

[Tom Poje]

My guess, whether 'educated' or not is up for grabs.

your plan year runs from 6/1/01 to 5/31/02.

plan limits deferals to 10%.

plan is amended to allow catch ups 1/1/02

section 631 which is about catch ups says it applies to taxable years begining after 12/31/2001. That is very important, and a major difference from being plan years beginning after 12/31/2001.

so if ee makes 80,000, for a given plan year, he is limited to 8,000. therefore, if you are in the plan year from 6/1 - 5/31 I would say he could defer 9000. the rest of the calendar year

6/1/2002 - 12/31/2002 his deferral is limited to a aximum of the 402 g limit of 11000 + 1000 catch up - whatever he deferred in the first half of the year.

But he also is limited to 10% of comp in the second half of the year. Nuts. I would get rid of the 10% cap at the same time i amend the plan to allow the catch ups. i already have enough headaches.

By the way, section 631 is found under Subtitle C -which carries the heading "enhancing fairness to Women'

then says catch ups are ok for individuals age 50 or over.

tricky huh? to get the measure through, we say its fairness to women, but then allow for everyone.