Catch-up Contribution Question

[Guest Max Power]

If an employer defers $16,000 over the course of 2004 and his two NHC ees defer nothing-0%, the ADP automatically fails and the ER must take $13,000 as income. Is the $3000 excess amount counted as a catch-up contribution?

The rationale, as explained to me, is that the ER has unreliable business income, (and he may be a bit of a spendthrift...), and he wishes to use the returned deferrals to fund a discretionary profit sharing plan contribution for his 2 ees.

[Mike Preston]

Only if the employer is over age 50 at the end of the year in question. But otherwise that is precisely how the catch-ups are supposed to work.

[Guest Max Power]

Thanks again Mr. Preston. I realize some of my posts are elementary in nature, so I do appreciate your patience and kindness.

[FundeK]

Plan has to allow catch-up contributions.

[david rigby]

Does this not also assume the two NHCEs are not excludable?

[Mike Preston]

Geez, you must be an actuary. ;-)

If the OP says the ADP test fails, can we not assume that the ADP test fails?

I know, I know.......

[david rigby]

You are correct Mike. There has never been a ADP test performed where the participants tested were in error.

[Mike Preston]

Well, on that we, of course, cannot disagree! ;-)