HCE: Deferral % increases mid yr. Is catch-up contribution allowed?

[Guest ckv]

HCE deferrals were limited to 8% earlier this calendar yr. Mid-yr we received a letter saying that is now up to 10%. However, even at 10% we will still be well under the $14,000 limit for the calendar yr, and would like to do a "catch-up" deferral to bring YTD deferral up to 10%. Plan administrator is saying that is not allowed. What do the regulations say? Is there a specific section of the regulations to which you could refer me?

[WDIK]

First, I would clarify if the plan document language limits the HCE deferral rate to 10% on a payroll basis or on an aggregate basis. The plan language will be controlling.

If the limit is on a payroll basis, it would appear that you could not bring your year-to-date deferrals up to 10%.

If the limit is on an aggregate basis, it may be possible to increase future deferral rates to above 10% so that by the end of the year total deferrals could be 10% of total compensation. Once again, however, it depends on the wording of the plan document and the plan administrator's interpretation thereof.

(By the way "catch-up contributions" have a special meaning within 401(k) terminology that is unrelated to your query.)

[Mike Preston]

I'd guess that there is a very good reason for the 10% limitation. But before I could tell you for sure, I'd sure like to know who sent you that letter. And, even more importantly, I'd like to know WHY they sent you that letter.

There is certainly nothing in the code or the regulations that restricts your HCE's to 8% or 10%. So there must be some other reason for it. Find out what it is, and then maybe somebody can tell you whether that reason can be set aside.

[austin3515]

I thought the Plan Admin has the ability to limit contriubtions of HCE's to ensure passing the ADP test. I didn't think the limit needed to be in the document. I was just reading a Corbel VS document and seemed to include this type of language.

[WDIK]

Even if the plan document gives such authority to the plan administrator, I would still ask whether the limitation was placed on a payroll or an aggregate basis.