Catch-Up Deferrals

[Guest dpasi]

Is it allowed to recharacterize HCE's deferrals as catch-ups to help pass ADP testing? If a HCE deferred $5,000 in 2004, can the plan treat this HCE as deferring only $1,000 (with the balance as catch-up) for 2005?

[rcline46]

You must look at the definition of a catchup contribution:

1. Amount in excess of the 402(g) limit

2. Amount in excess of the 415 limit

3. Amount in excess of plan imposed limit (such as 10% of pay)

4. Excess contribution from a failed ADP test (SBJPA distribution amount)

Do you meet one of these definitions? If not then how can it be a catch up?

[Tom Poje]

I'm confused on the question itself. The first half refers to 2004 and the second half of the question refers to 2005. e.g. Is this a non calendar plan, etc.

[Lori H]

i would like to bring this issue up again. a plan fails the adp for the 2005 calendar plan year. the plan allows 100% of comp to be deferred. two of five hce's are over 50. those two hce's defer 13,000 in 2005, however if $4000 is recharacterized as a catch up, the plan passes the adp. so in theory $9000 is used when running ADP. is that ok? or is the proper method: determine how much excess would have to be refunded to the hce's by calculating the excess to each hce by leveling, if the excess does not exceed the catch up limit, then no refund is due. for example these particular hce's deferred the highest dollar amount and therefore would get the first reduction in the leveling method and if the amount of excess was $1000 each to pass adp then that amount would be classified as the catch up.

what's the catch?

[Bird]

The second method is correct. You can't arbitrarily assign amounts as catchups, but if you fail the test that's one way they can become catchups. In your case, it's the same result. Had the younger HCEs deferred more, then they'd have to get refunds, and the potential catchups would be wasted.