Catch Up Regs - Cash Availablity Limit Exception to UA Requirement

[Alf]

Our plan allows deferrals of up to 50% of compensation. Are these the types of limits the final 414(v) regs are talking about in the cash availability (75% or more) rules?? Isn't our 50% limit an employer provided limit that is acceptable? Is the cash availability limit referring to something else?

[Alf]

Ok, I get it (after re-reading the regs for an hour). We don't limit total deferrals (including catch-ups) to 50% of comp, so catch-ups aren't limited and the UA is not a problem.

[401 Chaos]

Alf,

If I understand your facts, your analysis matches my understanding of the new regulations. We have a similar plan that also limits elective deferrals to 50%but does not impose any limits or caps on catch-up contributions with the general thought that eligible participants ought to be able to defer as much as necessary to make full catch-up contributions. The recordkeeper for the plan, however, requires participants to elect a set percentage to be deducted from pay for both elective deferrals (e.g., percentage between 1% and 50%) as well as a specific deferral percentage for catch-up contributions. Given the current plan terms, I assume the participants should be able to elect any percentage between 1% and 100% for catch-up purposes. However, the ability of participants to elect 100% deferrals coupled with the new regulations and safe harbor exception have caused the Plan Administrator to question the 100% deferral ability. Thus, although the new cash availability limits do not appear applicable to the plan as currently drafted, the Plan Administrator is now considering changing the plan to include a cash availability limit.

Have others had similar experiences and, if so, how are other plans responding?

[E as in ERISA]

If you allow catch-ups in your plan and you have a 50% limit, then you have to allow catch-up eligible participants to defer above the 50% limit.

If you have a 75% or higher limit, then you don't have to allow catch-up eligible participants to defer above that limit.

I haven't seen anyone that is doing both limits at the current time.

[E as in ERISA]

If you allow catch-ups in your plan and you have a 50% limit, then you have to allow catch-up eligible participants to defer above the 50% limit.

If you have a 75% or higher limit, then you don't have to allow catch-up eligible participants to defer above that limit.

I haven't seen anyone that is doing both limits at the current time.

There would be few persons who would hit the 75% limit without hitting the 402(g) and catch-up limits.

[401 Chaos]

Katherine,

Thanks for your response. Perhaps the dual election requirement--one for elective deferrals and a separate one for catch-up deferrals--is unique to our vendor because of the way their system tracks catch-up contributions but it is clear that catch-up eligible participants will be required to specify two separate election percentages as part of the enrollment process.

Do I read your response to say that any limit on elective deferrals, although not intended to limit catch-up contributions in any way, could still generally be considered to operate as a limit on catch-up contributions? The plan has no problem with catch-up eligible participants deferring above the 50% amount if necessary to make full catch-up contributions but we do not want to change the 50% limit on elective deferrals just because of the new universal availability regulations unless we have to.

[QDROphile]

401 Chaos:

If you have matching contributions in your plan, you should analyze very carefully how your vendor deals with the match and the testing. Under the regulations, catch up contributions are simply elective contributions until they exceed a limit, even if you call them catch up contributions from the outset. The difference between how the law treats the contributions and how your vendor names them can cause a bit of a mess unless people understand what they are doing and recharacterize the contributions as necessary.