Match on Excess Contribution Recharacterized as Catch-up

[Guest Giovanni]

The 401(k) plan does not match catch-up contributions, yet there is a 25% match on all other deferrals. A over-50 HCE contributed $13,000 in 2004. The ADP test failed and the excess contribution is $1,000. The $1,000 was recharacterized as catch-up, therefore no refund. Is it ok that the $1,000 was matched, since it was not considered a catch-up at the time it was contributed and matched? I think it's ok, but was wondering what others thought.

[Guest mkimball]

sounds like a plan document failure now, since the catch-up deferrals were matched, but the document says they are not to be matched. I would forfeit them, same as on a match attributable to corrective distribution of deferrals.

[Blinky the 3-eyed Fish]

Giovanni, why would you think it's okay? The plan you describe doesn't match catch-ups and you just matched a catch-up. Your situation is one of the reasons it is much harder to administer a plan that doesn't match catch-ups.

[mbozek]

If the plan does not match catchups then the employee has no right to the match on the catch up and the catchup match should be removed from his account.

[Guest Giovanni]

Blinky - My feeling was that the deferral was not a catch-up at the time it was originally made.

Upon further reaearch, I found this topic discussed at 11.279 in the 2005 ERISA Outline Book. If you're interested in this topic, I think you may want to read this. This is saying that the $1,000 would still be considered an excess contribution, even though it was recharacterized as a catch-up.....and that the related match may be forfeited.

[Blinky the 3-eyed Fish]

I didn't read your cite, and it may address this, but the catch-ups are determined last, after all is said and done. Some catch-ups are obvious that they are catch-ups at the time they are made, i.e. over the 402(g) limit, but others are not, like your situation.

Keep in mind this scenario will most likely repeat itself and so you should proceed to figuratively shoot the person who designed this plan and then consider amending it.

[Guest Giovanni]

Blinky--When you get a chance, please read my site and see if it changes your opinion on this situation. Also look at 11.356.

[Blinky the 3-eyed Fish]

We haven't loaded up the 2005 edition yet, so can't right now. Your summary though in your next to last post of what the EOB says agrees with what I was saying though, so I am not sure what my mind will change to.