Off calendar year catch ups

[Guest DTrom]

A plan has an effective date of 3/1/2004 and runs off calendar.

The owner makes one contribution on 12/31/2004 for $16,000 and no additional contributions before the plan year ends on 2/28/2005.

Am I correct in assuming that for non-discrimination purposes for the plan year ending 2/28/2005 the owner has deferrals of $13,000 and catchup contributions of $3,000?

Since we only get the census at the end of the plan year, and post a single transaction, our system wants to make the deferrals $14,000 with a $2,000 catchup (based on 2005 limits).

Thanks!

[jquazza]

You assumptions are correct. Systems don't do everything right all the time.

[Guest DTrom]

Thanks for the confirmation!

[Beltane]

help me on this one...The preamble to the final catchup regulations says:

"...in a plan with a plan year ending on June 30, 2005, elective deferrals in excess of the employer-provided limit or the ADP limit for the plan year ending June 30, 2005, would be treated as catch-up contributions as of the last day of the plan year, up to the catch-up contribution limit for 2005."

February 28, 2005 year end would trigger usage of the 2005 catch-up limit figures of $14,000 + $4,000, so $16,000 deferred in that plan year would yield $14,000 for testing and $2,000 for recharacterization...

Not sure about this, comments anyone??

[Beltane]

Additional comment to my prior post....looking for confirmation and clarification from the audience.

As I examine the catch up regs and preamble, it appears the catchup limit for a plan is determined from one of the following limits: Statutory (the calendar year 402(g) limit), employer provided limit [never seen this actually, other than the limit on elective deferral percentages which are high now because of EGTRRA] or the ADP limit.

For a non calendar year plan, say a March year end, the statutory limit really becomes a calendar year payroll limit, so when running the ADP test the statutory limit is beside the point. Assuming there is no employer or plan limit, this leaves us with the ADP limit, which has to be calculated by running the test.

You run the test and fail. You calculate your total dollar refund, then apply the leveling method to see who is credited with tentative refunds and the amount per HCE. For an HCE who is catchup eligible and is in the refund group, the maximum catchup amount is determined based on the catchup limit in effect for the year in which the plan year ends. For a March 31, 2005 plan year end, you would use the 2005 catchup limit of $4,000. So if the tentative refund is $3,500 to such HCE, this is less than the catchup limit so no refund is required, just reclassify as catchup.

My problem is what if, when you run the test, you have a Non HCE who is catch up eligible and goes over the statutory 402(g) limit for the 2004 calendar year? How is their catchup taken into consideration? The HCE limit is the ADP limit, what is the catchup limit for a non-HCE? In other words, if NHCE deferred $15,500 in the plan year ending March 31, 2005, what figure is used for their test?