catch up contribution question

[fiona1]

9/1 plan year

Failing 9/1/02 to 8/31/03 ADP test

1 member getting refund and they're over 50

Refund is 3730.16

2000 tax year contribs equal 10,999.70

Catch up for 2002 would by 1000.00 and for 2003 would be 2000.00 for a total of 3000.00 that could be reclassified for the 2002 test year.

Does that sound right?

[Guest LoloV]

For a non-calendar plan year, it is my understanding that reclassified ADP excess amounts can only be applied to the catch up limit for the calendar year in which the plan ends. Since the catch up limit for 2003 is $2000, I think only $2000 of the ADP excess could be reclassified as catch up. Also note, that if you use this election, the participant does not get to defer in excess of the 12,000 402(g) limit for 2003.

"2000 tax year contribs equal 10,999.70" Did you mean 2002 tax year? If so, I think you could take $1000 out of the 08/31/03 ADP test completely as a catch up contribution for 2002 calendar year.

There are a few good examples in The ERISA Outline Book regarding catch-up contributions and non-calendar plan year ends.

[fiona1]

Thanks for the reply.

Yes, I meant 2002 tax year was $10,999.70.

So $2000 from 2003 calander year can be used.

Still not clear if you believe $1000 from 2002 can be used as well.

Your first paragraph indicates no, that you can only recharacterize the limit for the year in which the plan year ends. But second paragraph indicates that $1000 can be taken from 2002 in addition to the $2000 from 2003.

Found some info in ERISA Outline - but nothing yet that addresses combining two calandar year limits for one play year.

[FundeK]

No, you can not use the $1,000 for 2002. The ERISA Outline book,states, "The portion of the elective deferrals treated by the plan as catch-up contributions are subject to the catch-up limit for the calendar year in which the plan year year ends and affect the remaining catch-up limit for that year. So, $2000 would be classified as catch-up for 2003, and you must return the remainder. I have an excellent example from the ERISA Outline book, but it is from a Sal seminar, so I am not sure where it is in the Outline book. If you would like a copy, please let me know. (it is under the "ADP testing under plan that includes catch up contribution features" section.)

[Tom Poje]

the preamble to the final catch-up regs

says

"For example, in a plan year ending on June 30,2005, elective deferrals in excess of the...ADP limit for the plan year ending June 30,2005, would be treated as catch-up contributions as of the last day of the plan year, up to the catch-up limit for 2005."

Based on that,

In your example you had 3000+ in excess contributions. Sinc plan year ends 2003 only those deferrals up to the limit of $2000 can be treated as catch up.

[rcline46]

I have not seen the answer to this part of the problem:

Plan permits catch ups in 2002 - non calendar year plan

402(g) limit is $11,000 for 2002, contribution is $12,000

And to make it interesting - assume a single contribution of $12,000 in December 02.

Therefore, I believe there is a $1000 catchup for 2002 for exceeding 402(g). The question then does this catch up apply to the 8/31/02 year end when the contribution clearly is AFTER the end of the plan year.

Now in 2003, at 8/31 an adp test is performed. Between 1/1 and 8/31 this person deferred say $6,000 for a total of $18,000 in the plan year.

First, I think the $1,000 for 2002 catchup comes out. Now we are dealing with $17,000 for the ADP test. Note to fiona - this only works if the 402(g) limit is exceed in the CALENDAR year. I agree you cannot go back and create a catchup where no 415/402 limit was exceed.

Now two possibilities - no failure, no catchup off the $17,000, but $6,000 in for 2003, so they can contribute (14,000-6,000) or $8,000 and get a $2,000 catchup as part of the $8,000.

ADP failure for $2,000 (or more), $2,000 catch up and they can contribute (14000-6,000) for $8,000 more.

THey are in the same position as if calendar year.