Age 50 Matching Contributions

[Guest koolkid]

If a 401(k) plan follows a safe harbor match formula and it intends to match age 50 catch up deferrals, is there any IRS guidance to suggest that the match on the age 50 amounts will be subject to special nondiscrimination testing?

[Guest PJW]

There is no indication that catch-ups are subject to "special testing." The guidance on catch-up contributions does not provide a discussion of whether a plan can continue to satisfy the safe harbor requirements if catch-up contributions are not matched. Nevertheless, I believe that matching contributions may have to be made on catch-ups to stay within the safe harbor, because under the safe harbor rules a match must be based on elective contributions, which is essentially what a catch-up is defined as.

The catch-up rules provide no authority for making matching contributions on the catch-ups. Therefore, the authority to make the match must come from somewhere else. Code section 414(v) essentially states that catch-ups are additional "elective deferrals" as defined in 414(u)(2)©. Section 414(u)(2)© cross references the definition of elective deferral in section 402(g)(3). Under 401(m)(4), matching contributions can be made on an employee's elective deferrals as defined under 402(g)(3). If matching contributions on catch-ups operate under the same rules as matching contributions on ordinary deferrals, then it would appear as though they would have to be made under the safe harbor rules, which require an employer to make matching contributions to all NHCEs based on each employee's elective contributions.

Although the regs provide that catch-up contributions are not taken into account for ADP testing, there is no mention of excluding matching contributions from testing.

[John A]

The preamble to Proposed Reg 1.414(v)-1 specifically states that matching contributions made on age 50 catch-up contributions will be subject to ACP testing. However, it does not appear to me to clearly address how matching contributions on age 50 catch-up contributions affect a plan that otherwise meets the safe harbor requirements to be exempt from ACP testing.