Match on Excess Contribs that are Recharacterized as Catch-up

[Guest Giovanni]

Suppose you have a 401(k) plan that does not match the catch-up contributions. The ADP test fails and a person's excess contribution is recharacterized as a catch-up, therefore no refund. Is that person entitled to a match on this recharacterized amount?

[Tom Poje]

the propsed regs (maybe they are final now, I am just looking in the book I have)

1.414(v)-1(d)(2)(iii) last sentence

even though the deferrals are treated as catch ups and not actually distributed "...such deferrals are still considered to be excess contributions...and accordingly, matching contributions with respect to such elective deferrals MAY be forfeited under the rules of section 411(a)(3)(G)."

I dont read MAY as saying you dont have to, but rather normally you wouldnt forfeit match, but this is an exception to the rule. you may (or put another way) you have to forfeit the match

[Guest Giovanni]

Tom....thanx for your response. Please note that the Plan I'm referring to does NOT match the catch-up contributions. There are NHCE's (over 50) who are deferring $16,000 and will only get a match on $13,000. Suppose at the end of the year, the ADP test fails and there is a HCE (over 50) who deferred $10,000.....yet the max to pass the test is $7,000. He was matched on the whole $10,000, since the $10,000 was considered regular deferrals during the year. Now we recharacterize the excess contribution of $3,000 as a catch-up. What happens to the match on this $3,000? Since we are now calling the $3,000 a "catch-up", is the person entitled to the match on the $3,000 since the Plan says there is NO match on catch-up contributions? Can he keep the match? Should it be forfeited?

[Tom Poje]

understand that.

the way I read the reg (and of course I could be wrong) would say ee had 10,000 in deferrals. but of that 3000 is excess due to failed test.

suppose the catch up rule didn't exist. in that case you forfeit the match. (Unless you were lucky and failed ACP test as well and 'ran' and 'fixed' theACP test first.)

I don't see where the catch up rules have changed anything (note the regs still say you have excess contributions), except instead of distributing the deferrals you left them in the plan

[david rigby]

...and the answer is the (now old hat) "you do what the document says".

If you want to match the $3000, it appears a plan amendment will be needed.