Excess Deferral or Catch-up Contribution

[rocknrolls2]

Participant A is 49 years old in 2008 and makes an excess deferral to Plan X. A reports the excess deferral to the sponsor of Plan X in early 2009, the year in which he will attain age 50. Can the employer simply recharacterize this amount as a catch-up contribution or must it refund the amount as an excess deferral?

[Mike Preston]

The catch-up issue is a red herring. Take the situation where somebody participates in two plans and, between the two, defers in excess of the 401(a)(30) limitation. The participant MAY ask either plan for a refund, but the plans NEED NOT have a provision that allows for a refund. Hence, this is a document issue. The document can provide that a refund will be made. The document can provide that a catch-up will ensue (remember, plans don't need to provide for catch-ups, but as a rule, they do). Do you get the impression this is a RTFD issue? (Read the Fantastic Document).

[Guest CinC]

Regardless of what the plan says, I don’t see how the 2008 excess could be recharacterized as a catch-up for 2008 – based on the facts provided, Participant A had not reached age 50 at the end of 2008. If the plan permits after-tax contributions, however, it could possibly be recharacterized as after-tax.

[Mike Preston]

Oooh, good point. I agree that the plan can't have language to turn a 2008 deferral into a catchup for somebody who turns 50 in 2009. But it still might not have to return the excess, or recharacterize it.