discriminatory?

[wsp]

I've got a p/s plan where the owner is over age 50. Owner is very generous to the participants and has provided 15% p/s contribution from year to year. None of participants are near age 50 however. Owner would like to take advantage of the catchup provisions.

I've got another plan where i've set the plan limit to zero and thus only those eligible for catchup can defer, but all of the participants in that plan are HCE's.

Can I do the same here even though the only person who can take advantage is the HCE?

[rcline46]

If the plan limit for deferrals is -0-, then how can anyone contribute to get a catch-up - deferrals are not allowed at all. That is a very bad choice (in my opinion). And if they are all HCEs, who cares?

In your first plan, the first $5,000 over what the ADP test allows is catch-up, no problem. If necessary switch to prior year testing and you know your answers each year.

[wsp]

If the plan limit for deferrals is -0-, then how can anyone contribute to get a catch-up - deferrals are not allowed at all. That is a very bad choice (in my opinion). And if they are all HCEs, who cares?

In your first plan, the first $5,000 over what the ADP test allows is catch-up, no problem. If necessary switch to prior year testing and you know your answers each year.

If plan limit is zero then everything over that must either be refunded or reclassified as a catchup. No different than if the plan limit was 1% or $1. Question is really...do you run into a problem if the only person who can take advantage of that catchup feature is the HCE.

[rcline46]

If you are so sure you are right, call IRS for technical advice. And report back to us who you talked to and their response. Tell us the plan name. I could use a bonus for reporting the plan for audit.

I repeat if you cannot make a contribution, you cannot put in money to be reclassified as catch up! A catch up is a deferral first, and if you cannot make a deferral, you cannot even GET to catchup!

[Mike Preston]

It is 10/16. One must forgive those in the pension industry for being a bit out of sorts.

The answer to the key question is a positive one. That is, when the only participant who is over age 50 is an HCE it is NOT discriminatory to allow for catchup contributions.

As long as any other participant, should they come to you and report that their birth date on your records is inaccurate and you find that they are over 50 would be allowed to contribute to the plan such that they, too, could take advantage of the catchup provision.

The other issue, as to whether a plan limit of zero is allowed as far as regular deferrals go, the answer is: nobody knows.

My suggestion whenever this comes up is to arrange the plan so that it delineates regular from catchup contributions during the year. This is normally ill advised and is not necessary under the catchup regs. But you want it to be that way so you can:

1) set the limit of regular deferrals at a very low amount

2) submit the plan to the IRS for approval so they can confirm or deny (1) as being "ok".

fwiw

mike