Catch-up contributions; 2 unrelated plans

[Guest LuannJ]

This is a cumulation of several discussions with some disagreement, so we're looking for a new view.

A participant contributes to plans for two unrelated employers during the year (2003). Assume that in the first plan, he reaches a plan limit at $8,000 and then has $2,000 in catch-up contributions.

He then changes employers. How much can the participant contribute to the plan of the new employer? Assume a second plan limit does not apply. Can we say the $2,000 catch-up has been used, and the participant can contribute another $4,000 to reach the 402(g) limit?

Is there any way that this participant might be limited to a total of $12,000 rather than $14,000? (We have one dissenting opinion for this.)

Further, the second plan does not match on catch-ups, but since the plan does not recognize a catch-up because no limits are met - and until notice that the participant actually did overcontribute in total, was unaware they would meet the 402(g) - this plan has matched on all contributions. Can the current plan recognize that catchup was made in the prior plan, and match all contributions to the new plan; or must the catch-up be recognized at the end of the year in the current plan (and we should then forfeit match on $2,000)?

[E as in ERISA]

Technically, I believe that the individual could potentially exclude from income $14,000 for 2003, even if neither plan allowed catch-ups.

1.402(g)-2(b)

Participants in multiple plans. Paragraph (a) of this section applies without regard to whether the applicable employer plans (within the meaning of section 414(v)(6)) treat the elective deferrals as catch-up contributions. Thus, a catch-up eligible participant who makes elective deferrals under applicable employer plans of two or more employers that in total exceed the applicable dollar amount under section 402(g)(1) by an amount that does not exceed the applicable dollar catch-up limit under either plan may exclude the elective deferrals from gross income, even if neither applicable employer plan treats those elective deferrals as catch-up contributions.

But I think that the person might be limited by plan terms and operations. Some plans just wait for a participant to notify them that there is an excess in their plan. Others proactively collect information on prior deferrals under unrelated plans. The latter may have to rethink how they handle this information for catchup eligible participants.

[Appleby]

I agree with Katherine. For a discussion on the topic ,see http://benefitslink.com/boards/index.php?a...st=0#entry82341