Catch-up contributions

[Guest jpetrancosta]

An owner wants to add a 401(k) feature to his new comparability plan to take advantage of the catch-up contributions, and maximize his annual contribution. The owner does not want to add a safe harbor provision solely because of its immediate vesting. Can we set the 401(k) deferral limit in the plan document at a relatively low 3% of comp and still take advantage of the catch-up contribution provisions. At 3% the we do not anticipate a problem with ADP testing.

[Guest CRC02]

Catch-up contributions can be made under three circumstances: when the 402(g) limit on elective deferrals is reached; when the plan limit on elective deferrals is reached, or when the limit established through testing is reached. Therefore, in this case a catch-up contribution would be permitted for an age 50 or older participant after he hits the 3% plan limit.

[Guest jpetrancosta]

Thank you.

[R. Butler]

It is not really necessary to put a deferral limit in the Pllan to accomplish what you want. Set up the Plan using prior year testing. In the first year the HCE could defer 5% plus the $1,000 for the catch-up. In the second year the lesser of 2+/2x the prior year NHCE ADP plus the catch-up.

By putting the 3% limit the Plan is just unnecessarily limiting the amount the HCE may be able to defer.

[Guest jpetrancosta]

Thank you. I think that's what CRC02 was alluding to under his third method - once a testing limit is reached. Am I correct on this.