Catch-up/415 Limit

[Guest Giovanni]

I realize that catch-up contributions are not counted in the 415 limit. Yet, suppose we have the following scenario:

2002 Plan Year.

HCE wants an allocation of $40,000.

He contributes $11,000, therefore could get $29,000 PS.

ADP test fails and he needs to get a refund of $1,000.

We recharacterize the $1,000 as catch-up, so there is no refund.

Previously (before catch-up rules became effective), we would still count the $1,000 refund in the 415 limit. But now that the $1,000 is recharacterized as a catch-up, is it counted in the 415 limit? If not, then the PS contribution could now be $30,000.

My personal feeling is that the $1,000 should be counted in the 415 limit and the PS contribution should be limited to $29,000. Does anyone know for sure?

[E as in ERISA]

Section 414(v)(3) doesn't mention Section 415. Therefore, I believe that the catchup is subject to the 415 limit. (So the profit sharing contribution is only $29,000)

[Mike Preston]

I usually agree with Katherine, but I respectfully disagree this time. 414(v)(3)(A)(i) has "415" in it.

Yes, it is a chicken and egg thing. If the allocation of the PS was limited to $29,000 because the deferrals were $11,000, then the participant gets a bigger share of the PS contribution, but not in excess of $30,000 in 2002. Of course, the plan has to allow catchups and the participant has to be catchup eligible.