SARSEP - HCE catchup contribution - ADP test limits percentage

[Guest bruss]

Can an HCE still make the 3,000 catchup deferral, when the actual deferral is less than 13,000 due to percentage limitations with the ADP? For example, HCE can only defer 3% of pay, which is about 6,000. Can HCE still also defer an additional 3,000? Or is the catchup only once you've been able to max out at the 13,000 dollar amount (which we can't because of the adp testing.)

[Gary Lesser]

Yes, the catch-up is what's left after all other limits have been addressed. As I see it, the catch-up is in addition to the 25% exclusion limit/the 100% limit/and the $40,000 (as adjusted) limit. So, elective contributions that remains after the ADP test, up to the $3,000 limit, may then be treated as deductible catch-up contributions.

[Guest bruss]

So, in my example, we could have the HCE defer the 6,000, plus an additional 3,000, and they could make an employer contribution to potentially get him up to 44,000 in total (6,000 regular deferral, 3,000 catchup deferral and employer contribution assumed to be 35,000)??? Comp is 205,000.

[Gary Lesser]

That's correct. However, if the plan is integrated (as it probably should be), the $41,000 component is reduced by the integration spread multiplied by the lesser of (a) the integration level, or, (b) the employees compensation. [iRC 402(h)]

Note, that the 25% deduction limit may be higher than the amount that can be allocated on an excluded basis. Best to determine this limit first and only allocate that much (plus catch-ups). The deduction limit is based on CY compensation that ends with or within the plan year. Most other computations are based on compensation for the plan year. Hope this helps.