Impact of Final Regs on Catch-up

[Guest CRC02]

Before the final regs were issued, many people believed that you could create two categories--regular contributions and catch-up contributions--for participant contributions to plans that match on a pay period basis to avoid matching catch-up contributions. If at the end of the year a participant was not eligible to make catch-up contributions, the amounts called catch-up contributions would be recharacterized as regular contributions and participants would be made whole for any missed matching contributions with a true up.

The final regs state that the solution to the pay period matching problem is describing what can be matched rather than what cannot be matched. The example in the preamble describes using a percentage of elective deferrals to segregate what is and is not matched and makes no mention of separate categories. Can you still use the separate boxes, or has the IRS killed that method?

[rcline46]

I STRONGLY disagree with anyone who considers anything other than last $ in as catchup. Catchup is a appellation given to deferrals over the maximum permitted, so they must be last $!

Consider the over age 49 HCE who is required to 'giveback' money for ADP failure. This giveback can be recharacterized as catchup, ney dare I say MUST be (as good service to your client!).

Second, I have no rationale for ever limiting the deferrals to some % of pay other than 100% (of course this means net of mandatory taxes, etc), or $12,000. Therefore, the ONLY employees getting a match catch up (or at least 99.999999% of the time) are HCEs!

Basicly, in my opinion of course, not matching catchups because NCEs will get them has to be a bad plan design unless you really have a really unusual demographic situation.