Catch-up contributions when 415(c) limit but not 402(g) limit is exceeded

[Guest Dave Peckham]

401(k) PS combo plan year is calendar year. For 2003, is it possible for a catch-up eligible participant with, say, $80,000 comp to have a PS allocation of $40,000 and a catch-up salary deferral of $2,000? (Assume that company 404(a) limit is not exceeded.)

I've seen plenty of examples of $28,000 PS and $12,000 SD + $2,000 catch-up SD, but my reading of the 1.414(v) regs seems to allow the $40,000 PS + $2,000 SD, because Sec. 415 is one of the statutory limits that can trigger a catch-up contribution.

Unfortunately, the 1.414(v) reg examples are not on point.

Has anyone seen the $40,000 + $2,000 in use? Seen any expert guidance?

Thanks,

Dave Peckham

[FundeK]

You are correct. A plan imposed limit or a statutory limit must be exceeded before a deferral can be classified as a catch up contribution. In your example below, the participant's annual addition limit has been exceeded by $2,000; therefore, if he is catch-up eligible, the $2,000 would be classified as a catch-up contribution.

I also read that a plan could be written to have a 0% deferral limit and allow catch up contributions.

[Guest philc]

Something similar and just haven't run up against this before - a plan permitted employees to contribute 1-25%, either before or after tax. An employee chose to contribute 25% after-tax and then also wanted to make a catch-up from end of Dec.s pay.

[FundeK]

Does the document specifically state that if they make after tax contributions, they are not eligible to make pre tax? If so, I would say the 25% after tax would be viewed as having reached a plan imposed limit at which point the additional deferrals would be classified as catch up contributions.

Anyone else have an opinion?

[TBob]

Dave - I think that this works in your situation as long as the plan has the 401(k) provision. I have had plan sponsors who have traditionally hit the 40,000 limit in a straight profit sharing plan who then want to make a catch-up contribution. I have told them that they have to add the 401(k) feature and allow all of the employees the ability to defer in order to allow for the catch-up.

I did not think of setting a plan limit of 0% which would effectively only allow ppts what are over 50 to defer just the catch up amount. Has the IRS had any issue with doing this?