Excess Contributions and the related Match

[msmith]

If I have a failed ADP Test and I rechacterize an excess contribution as a catch-up deferral do I forfeit the related Match?

Sal Tripodi's ERISA outline seems to indicate that forfeiture is not "required." Who makes that call? I am using a Corbel Volume Submitter and the definition of Excess Contributions does not mention this. The document does state that Matching contrbution that relate to excess contributions shall be forfeited.

Any insight would be greatly appreciated.

[smm]

Do catch-up contributions receive matching contributins - what does the plan say?

[msmith]

Do catch-up contributions receive matching contributins - what does the plan say?

Yes, catch-up contributions are eligible to be matched.

[Kimberly S]

Then you have your answer.

[msmith]

Then you have your answer.

I am not sure that I do. Catch-up contributions are matched - a match that relates to an excess contribution is forfeited. If Treasury still treats the recharacterized amount as an excess contribution, then, do I have a related match issue.

[Below Ground]

Catchup Contributions are not Excess Contributions. You don't have an issue.

[msmith]

Catchup Contributions are not Excess Contributions. You don't have an issue.

What about 1.414(v)-1(d)(2)(iii)?

[Tom Poje]

This is how the regs and the all important preamble describe it.

Even though these elective contributions are not distributed, they are still excess contributions, and accordingly, the related matching contributions made with respect to excess contributions may be forfeited [1.414(v)-1(d)(2)(iii)]

but…

If the plan applies a single matching formula to deferrals whether or not they are catch-up, the matching formula is not treated as a separate BRF…but the match is still included in testing. [preamble to the regs on catch-up – see also 1.414(v)-1(d)(4)]

[Below Ground]

Comments of msmith and Tom Poje have made me rethink what I previously felt was "rock solid logic", and quite frankly, are a grave concern. That logic was....

"Plan fails ADP Testing, resulting in Excess Contributions. Excess Contributions were not eligible for match, so any related match was forfeited. Excess Contributions were then reclassified as Catch-Up Contribution which are eligible for matching if plan matches Catch-Up. Matching on these Catch-Up Contributions do not need to be forfeited as discriminatory matching. I guess this is not as rock solid as I thought.

Specifically, Mr. Poji, could you comment on 2 points (I added bold) from your post:

Even though these elective contributions are not distributed, they are still excess contributions, and accordingly, the related matching contributions made with respect to excess contributions

may be forfeited

[1.414(v)-1(d)(2)(iii)]

but…

If the plan applies a single matching formula to deferrals whether or not they are catch-up, the matching formula

is not treated as a separate BRF…but the match is still included in testing

. [preamble to the regs on catch-up – see also 1.414(v)-1(d)(4)]

I can't see how "may be forfeited" makes sense. How do you determine "may"? I am also unclear on how the BRF facet factors in. I respect your opinions and I appreciate your clarifications.

Ultimately, does anyone know what the "right position" on this issue should be?

Thank you for all comments.

Edited By Adding:

While I know ASPPA does not make or enforce rules, The ASPPA Defined Contribution Plan Series Volume 2 seems to support the "rock solid logic" I stated above. Specifically, page 3-23 says "the plan must forfeit the matching contribution associated with distributed excess contribution". Catch-Up is not distributed.

You will find this about 1/3 down the page. While it may turn out that the logic was wrong, and maybe I am reading this wrong, but that's why I reached that position.

[Tom Poje]

'may' is one of those nasty words in the English language.

I don't think in this case, it means, "It is up to the (ab)user - it is his choice, he may chooses do it or he may choose not to do it.

I think in this case it is more of an issue

the ee is 100% vested in the match.

logic (as well as the regs) would say, then there is no way in the world that such $ could ever be forfeited.

ah, but in the case of excess contribution, they 'may' actually be forfeited, despite being 100% vested.

that being said, I read the preamble as saying "If you don't have some goofy formula related to the match then dont worry about an apparent disproportionate rate of match if a catch up is involved with excess contributions"

[Below Ground]

Tom, thank you for your prompt response. (I sent Tom a message asking specifically for his reply.) Since most plans I do match a single stated percentage with a dollar or % cap, I will stop losing sleep over this issue. I guess the right answer depends upon if the word if, means "if". Again, thanks.

[Tom Poje]

I suppose what might be missing from the 'discussion' here is

"What if catch-ups are not matched"

the preamble (paragraph after the one I quoted)

...the plan can specify that matching contributions will be based on elective deferrals that do not exceed 10% of compensation [the preamble was using an example, the 10% is not reg specific] AND (emphasis mine) the matching contributions on elective deferrals in excess of the ADP limit will be forfeited...

[Below Ground]

I'm not sure I follow.

[Tom Poje]

It looks like the concern was as follows using nice rounded numbers

Plan provides a 50% match.

HCE deferred 10,000 (10%) and received a match of 5,000 (5%)

plan failed so 5,000 was the excess contribution'

when removed from the test you would have

ADP 5% ACP 5%, thus 'appearing' to be a 100% match.

if the 5000 excess was a catch up matched, then ignore the way the ADP test 'looks' for BRF- you still have a 50% match.

if the 5000 excess was a catch up (and catch ups aren't matched) then you must forfeit.

[Below Ground]

Got it, I think. Thanks again.