ADP Violation and Catch-Up

[Guest Paul Hinderegger]

Assuming a participant is a "catch-up eligible participant," must elective deferrals be recharacterized as catch-up contributions due to a failed ADP Test? Or can the participant (or the plan sponsor acting on behalf of the participants) elect to have the ADP violation refunded rather than recharacterized?

[MGB]

They are catch up and not refundable. The participant elected to have a certain amount of elective deferrals. It is irrelevant to the participant whether it is deemed to be an ordinary elective deferral or a catch up. In fact, there is no reporting (to the participant or the government) that it is a catch up.

[Tom Poje]

yes, and for proof see

example 4 of the proposed regs on catch ups

in a nutshell, the example has plan failing ADP test, 2006 plan year, the ADP limit is 12,500 due to failed test.

HCE employee D deferred 14,000.

and now I quote "...the ADP limit under Plan P of 12,500 is an applicable limit. Accordingly, 1,500 of participant D'e elctive deferrals exceed the applicable limit....Plan P MUST (emphasis mine) retain participant D's 1,500 in elective deferrals..."

[Guest Factster]

If we assume that only $1000 of the $1500 excess contribution is recharacterized as a catch-up contribution, what is reported on the 1099R -- $500 because that is the portion that is actually distributed?

[Blinky the 3-eyed Fish]

Yes.