Matching Catchup Contributions

[Guest jae3207]

If a plan's EGTRRA amendment is silent as to whether or not the plan matches catchup contributions, should this be interpreted as they are matching catchup contributions?

[MWeddell]

I think this is just a matter of interpreting the plan document, so it's hard for us to offer an opinion from afar.

Certainly, the document says something about what is being matched. For example, if the document says that matching contributions are allocated based on "elective deferrals" then you'll have interpret whether "elective deferrals" is defined in a way that includes or excludes catch-up contributions.

[ERISA1]

I'm struggling with the same question. There must be guidance in the final k regs. I just don't have time to read them at the height of contribution confirmation season.

I'm guessing that silence means you WILL match. Otherwise, why would document preparation software prompt you ONLY when you WON'T match.

Does anyone have a cite?

Thanks very much.

[QDROphile]

The preamble to the catchup regulations indicates the the IRS views catch up amounts the same as other elective deferrals and actually suggests that it is not proper to provide that catch up amounts will not be matched, as opposed to saying what will be matched (which allows you to get to the same place, so it is not a substantive rule, as demonstrated by its absence from the regulations themselves).

I have found that it does not make any difference under most matching formulas whether catch up is matched or not.

[ERISA1]

Dear QDROphile - Thanks for the reference to the Preambles to the Catch-up Regs!!!! I've got a case in which the employer matches deferrals up to 15% of pay, so there is definitely a question of whether catchups must be matched.

Do you agree with the following line of reasoning: The preambles seem to require a match on catch-up. It appears that IRS accepts plan language that expressly denies a match on catchup. But, in my case, the document does not expressly deny match on catch-up. Therefore, this plan must match the catch-up. Right?

Thanks for the feedback.

[QDROphile]

It is still potentially a plan interpretation question because the plan may not define catch up in the way that the law defines catch up. The plan could define catch up as the "extra" $5000 without regard for how the limits really play out. If the plan does not try to distinguish the extra $5000 from other deferrals (except that it is available only to the elders), I would be inclined to agree that you have no basis for not matching the catch up; the catch up is a deferral like any other deferral.

[Guest mjb]

Why isnt this a question for the fiduciary to decide since it will involve the expenditure of employer contributions? Why not ask the Plan admin or fiduciaries to interpret the plan instead of asking strangers who do not know what the plan says. Under ERISA interpretation of the plan is a fiduciary responsibility, not a TPA decision. Also preambles to regs are not binding interpretations of the regs under tax law; only the regulations can be enforced. There is nothing in 414(v) that requires matching contributions to catch up contributions.

[ERISA1]

MJB - The "strangers" who peruse these boards tend to be practitioners in the field, and include some real experts. They can provide insights reflecting years of experience. No one is bound to accept responses; least of all, fiduciaries who WILL make the ultimate decision. In my experience, fiduciaries will ask their service providers for input. My input to them may or may not be colored by the feedback I've gained on these discussion boards.

I appreciate your opinion about matches on Catch-up which, clearly, differs from that of QDROphile. I wonder if anyone else can provide input so as to help fiduciaries avoid problems with the IRS.

[QDROphile]

I observed that the regulations did not follow through on the preamble statements about matching, or not matching, catch up contributions. I do not disagree with the statement that no binding authority compels matching of catch up contributions. I cannot identify a disagreement between mjb's statements and mine. He made the valid point that this forum can provide only limited assistance with interpretation of plan terms. You made the valid point that limited assistance can be helpful.

[Mike Preston]

I would never, ever counsel a client to interpret a plan document to match anything other than all deferrals, catchup or not. That is, if there is the slightest doubt as to how the language could be interpreted. Further, if the document seems clear that matching contributions do not extend to catchups, I would counsel that they should modify their document to extend the matching contributions to catchups.

I am very concerned that the IRS will somehow view catchups not being matched as either an attack on the universal availabilty requirement or as a discrimination issue.

Take the case of a plan where in a given year the only catchups in the plan are made by an NHCE. Those catchups are not matched. Had they not been catchups they would have been matched. Hasn't the plan violated 401(a)(4) because the rate of match for the NHCE was somehow less than the rate of match that an HCE might have received had they made the same amount of contribution, merely because for the HCE none of the contribution was catchup? Think plan cap of a specific percentage of pay on deferrals, like 75% (the safe harbor in the regs for universal availability with respect to catchups themselves - but not extending to matching contributions, IIRC - but somebody should check me on this point). Think part time NHCE who was full time in a prior year and continues to participate. Think second income earner who wants to defer the max. Why is this person, who is deferring a small amount, in a position where the matching contribution is lower just because some portion of the deferrals are catchup? Yes, I know we can get around this issue by introducing a cap on the match that is percentage of pay related, but some plans don't have such a limit.

Don't have time to construct a complete example during contribution calculation season, but wasn't this issue pretty well hashed out moons ago?

[Guest mjb]

Huh? IRC 414(v)(4) expressly states that the universal availability rule only applies to catch up elective deferrals. 414(v)(1) states that a 401k plan will not fail any requirement for qualfication solely because it permits eligible participants to make catch up elective deferrals. The conference report on 414(v) states that an employer is permitted to make matching contributions with respect to catch up contributions, not required to do so. The stated purpose of 414(v) was to allow older employees to save more for retirement, not require the employer provide any additional contributions.