Catch-Up

[Guest moltengater]

I am confused on catch-up rule for a fiscal year plan and having some internal disagreement on the outcome.

Plan year 05-01-2005 to 04-30-2006.

HCE defer's $13,120 in 2005 calander year and which also corresponds to amount he deferred in 2005 plan year ending 04-30-2006. He has made no contributions in 2006 to date.

Plan failed ADP testing and he would get a refund of $1101.50. However, he is over age 50.

Can he reclassify his ADP refund as Catch-Up even though he has not made 2006 contributions?

[Leopurrd]

I'd be curious to see what other posters think...

my take on the issue is that catch up contributions are reported the same as regular deferrals...why not count them for 2005?? IF the case is that his 2005 calendar year deferrals equaled his deferrals from 5-1-05-12/31/05 (or alternately saying he did not defer jan-apr of 2005) AND assuming he was age 50 or older in 2005....it shouldnt be a problem. Then when you reclassify catch ups (if any) at 4/30/07 you have 2006 and 2007 catch ups available?

Just remember you can't double dip on the catch ups..once its done for that calendar year then there is no more!

Vicki

[Tom Poje]

the study guide for ASPPA course (Volume 2)

has the following examples on pages 59-61.

ok, I am paraphrasing a little

Herman defers 1800 / month.

he enters plan on 7/1.

thus from 7/1 - 12/31/2005 he has deferred 10800

from 1/1/06 - 6/30/06 he has deferred 10800.

a total of 21600 for the plan year, but no violation of 402(g) because that is a calendar limit.

plan fails ADP test ending 6/30/06.

Herman has excess contribution of $1500.

Becasue, as of 6/30/06 Herman has not used any catch up limit for 2006, the plan treats the 1500 as catch up for 2006. no refund. nada. zippo. zilch.

The plan must treat Herman as having 3500 available left for additional catch up for calendar 2006.

so far for 2006 he has deferred 10800. If Herman defers 9200 more in 2006, then an additional 3500 will be treated as catch up for 2006.

note: this would mean for the plan year 7/1/06 - 6/30/07 he has already used up 3500 - this amount would be disregarded in tha ADP test.

what the example doesn't say is that it was dicovered Herman lied about his age - he was only in his 40's. now everything is really botched up, and one regrets ever getting involved in the pension industry.

[ERISAnut]

I am confused on catch-up rule for a fiscal year plan and having some internal disagreement on the outcome.

Plan year 05-01-2005 to 04-30-2006.

HCE defer's $13,120 in 2005 calander year and which also corresponds to amount he deferred in 2005 plan year ending 04-30-2006. He has made no contributions in 2006 to date.

Plan failed ADP testing and he would get a refund of $1101.50. However, he is over age 50.

Can he reclassify his ADP refund as Catch-Up even though he has not made 2006 contributions?

Yes, it must be reclassified; and leaves him a deferral limit of $20,000 (less the reclassified catchup amount) for 2006. This would be different had he deferred during the first part of 2006, as his deferral limit for the year would have remained at $20,000. I am scating around the numbers as I do not know the "earnings" portion of your figure.

[Mike Preston]

I am confused on catch-up rule for a fiscal year plan and having some internal disagreement on the outcome.

Plan year 05-01-2005 to 04-30-2006.

HCE defer's $13,120 in 2005 calander year and which also corresponds to amount he deferred in 2005 plan year ending 04-30-2006. He has made no contributions in 2006 to date.

Plan failed ADP testing and he would get a refund of $1101.50. However, he is over age 50.

Can he reclassify his ADP refund as Catch-Up even though he has not made 2006 contributions?

Yes, it must be reclassified; and leaves him a deferral limit of $20,000 (less the reclassified catchup amount) for 2006. This would be different had he deferred during the first part of 2006, as his deferral limit for the year would have remained at $20,000. I am scating around the numbers as I do not know the "earnings" portion of your figure.

Can you explain how the "earnings" portion of the figures makes any difference, at all, to the determination of remaining catchups? Or how said portion might be relevant to the poster's question at all?

[Mike Preston]

I'd be curious to see what other posters think...

my take on the issue is that catch up contributions are reported the same as regular deferrals...why not count them for 2005?? IF the case is that his 2005 calendar year deferrals equaled his deferrals from 5-1-05-12/31/05 (or alternately saying he did not defer jan-apr of 2005) AND assuming he was age 50 or older in 2005....it shouldnt be a problem. Then when you reclassify catch ups (if any) at 4/30/07 you have 2006 and 2007 catch ups available?

Just remember you can't double dip on the catch ups..once its done for that calendar year then there is no more!

Vicki

Vicki, unless there is a reason to classify a portion of the deferrals made from 5/1/05 through 12/31/05 as catchups as of 12/31/2005, they aren't catchups as of 12/31/2005.

You might want to get a copy of Sal Tripodi's wonderful worksheets on determining catchups in non-calendar year situations and then put them into Excel. You will have a fantastic tool at that point that can really bring clarity to questions such as this.

[ERISAnut]

I am confused on catch-up rule for a fiscal year plan and having some internal disagreement on the outcome.

Plan year 05-01-2005 to 04-30-2006.

HCE defer's $13,120 in 2005 calander year and which also corresponds to amount he deferred in 2005 plan year ending 04-30-2006. He has made no contributions in 2006 to date.

Plan failed ADP testing and he would get a refund of $1101.50. However, he is over age 50.

Can he reclassify his ADP refund as Catch-Up even though he has not made 2006 contributions?

Yes, it must be reclassified; and leaves him a deferral limit of $20,000 (less the reclassified catchup amount) for 2006. This would be different had he deferred during the first part of 2006, as his deferral limit for the year would have remained at $20,000. I am scating around the numbers as I do not know the "earnings" portion of your figure.

Can you explain how the "earnings" portion of the figures makes any difference, at all, to the determination of remaining catchups? Or how said portion might be relevant to the poster's question at all?

She gave a figure of 1101.50. I didn't know whether that figure included an earnings calculation or not. If that figure was $1000 in contribution plus 101.50, then you must reclassify the $1000 as catchup for 2006 and the earnings remain. Hence, I scated around the numbers while the principles remain in tact.

Didn't we have a discussion about cherry picking statements?

[Mike Preston]

I am confused on catch-up rule for a fiscal year plan and having some internal disagreement on the outcome.

Plan year 05-01-2005 to 04-30-2006.

HCE defer's $13,120 in 2005 calander year and which also corresponds to amount he deferred in 2005 plan year ending 04-30-2006. He has made no contributions in 2006 to date.

Plan failed ADP testing and he would get a refund of $1101.50. However, he is over age 50.

Can he reclassify his ADP refund as Catch-Up even though he has not made 2006 contributions?

Yes, it must be reclassified; and leaves him a deferral limit of $20,000 (less the reclassified catchup amount) for 2006. This would be different had he deferred during the first part of 2006, as his deferral limit for the year would have remained at $20,000. I am scating around the numbers as I do not know the "earnings" portion of your figure.

Can you explain how the "earnings" portion of the figures makes any difference, at all, to the determination of remaining catchups? Or how said portion might be relevant to the poster's question at all?

She gave a figure of 1101.50. I didn't know whether that figure included an earnings calculation or not. If that figure was $1000 in contribution plus 101.50, then you must reclassify the $1000 as catchup for 2006 and the earnings remain. Hence, I scated around the numbers while the principles remain in tact.

Didn't we have a discussion about cherry picking statements?

If you (or anybody else, for that matter) make a statement that I think needs clarification, I will ask for that clarification. You can choose to provide it or not.

[ERISAnut]

If you (or anybody else, for that matter) make a statement that I think needs clarification, I will ask for that clarification. You can choose to provide it or not.

Perhaps you should think about the process and imagine why an exact analysis on the figure provided would be impossible without knowing the earning piece and then jump in and answer it yourself; since you think you know everything.

[Mike Preston]

If you (or anybody else, for that matter) make a statement that I think needs clarification, I will ask for that clarification. You can choose to provide it or not.

Perhaps you should think about the process and imagine why an exact analysis on the figure provided would be impossible without knowing the earning piece and then jump in and answer it yourself; since you think you know everything.

I would be surprised, based on the way the question was put, if the amount you assumed had earnings in it, was representative of anything other than deferrals to be refunded. I will leave it to others to determine whether your assumption was appropriate or not.

[Leopurrd]

Mike, Thanks for the reply on this; You learn something new everyday!!!

Vicki