ADP, Catch-Up and Refund

[imchipbrown]

Can anyone put an extra eyeball on this one.

My understanding is:

Do ADP test - fail

Adjust deferral % for HCEs.

Tally a dollar amount based on adjustment

Spread the dollar amount to reduce deferral dollars

Then, consider what is a catch-up

I haven't put a pen to it, but I'd love to say

ADP fails

Hack out $5,000 catch-ups

Test again

It may actually come out worse that way.

adp_test.pdf

[Kevin C]

Catch-ups triggered by the ADP limit are still counted in the ADP test. See 1.414(v)-1(d)(2).

You do the ADP test. If you fail and any of those receiving refunds are catch-up eligible AND have not used their full catch-up limit for the calendar year, then their ADP refund gets reclassified as catch-up up to the remainder of their catch-up limit. You do not redo the ADP test afterwards.

[Cynchbeast]

I agree w/Kevin. Initially, you only determine catch-up when 402(g) limit is exceeded. ADP test does not included THAT catch-up. But when ADP fails, you may re-characterize as additional catch-up - up to limit - from any give-backs.

So for 2008, for instance, ADP test incluldes ALL participant's deferrals up to $15,500, even if some of that gets recharacterized as catch-up after failed ADP test.

[imchipbrown]

Thanks, people. Did anyone look at the attached .pdf to see if it looks right?

[Kevin C]

For High 3, you are including $20,499.84 of deferrals in the test. He/she is catch-up eligible, so you should only be counting $15,500. $4,999.84 is catch-up due to a statutory limit (402(g)) and excluded from the ADP test.

[imchipbrown]

So, start the ADP ignoring what you can by statutory limit. Brilliant. Thanks very much.

I'll run off and see what that makes things look like.

[Kevin C]

Did you verify the HCE determination? That's where I start when I check an ADP/ACP test.

[imchipbrown]

OK. So it looks like

ADP for the Highly Comp'd drops to 12.06%.

Calculated total reduction dollars drops by $5,000.

Now, do you start reducing HCE 3's deferrals down from $20,500 or $15,500, to the next highest person's dollar amount, etc.?

[Below Ground]

Now, do you start reducing HCE 3's deferrals down from $20,500 or $15,500, to the next highest person's dollar amount, etc.?

Conceptually: You already remove the $5,000 Catch-Up when you went from $20,500 to $15,500. That person has no more Catch-Up available, so if you rank people by $$$ value and then cutback for excess from top down, that person should be at the top and should require a remedial distribution.

[imchipbrown]

I'm still confused as I allocate the amount dictated by Step 1.

I think the attached looks OK, but now I'm gun-shy. Can someone take another look? I can't find a cite after Notice 97-2 that illustrates the handling of the catch-up.

08Refund_try_2.pdf

[Kevin C]

You are closer, but not quite there. In your "Deferrals (Pre-Catch-up)" column, HCE 3 should be $15,500. HCE 3's deferrals in excess of $15,500 are not counted in the ADP test. Then, when you allocate the refund amounts, HCE's 1, 3, 4 & 5 will have refund amounts. HCE's 1 & 5 have not used up their catch-up limit for the year, so their refunds get reclassifed as catch-up. HCE 3 has already used up $4999.84 of the year's catch-up limit, so only $0.16 of the limit is available to reduce his refund.

[imchipbrown]

That is quite a different result. Of course, that's only because I'm comparing apples (wrong) to oranges (right). Here is the re-re-recalculted result.

I'd upload the actual spreadsheet for the general good, but its a real mess. Lots of hidden columns. Really "Goal-seek" dependent.

08Refund_try_3.pdf

[imchipbrown]

Wait. It's exactly the same result as the first attempt.

[Kevin C]

Try 3 isn't the same result as before. It looks like you have it now. Of course, that assumes there isn't a plan imposed deferral limit and that the 415 limit doesn't trigger catch-ups.

[imchipbrown]

Thanks, everyone, for all the help. Hope this thread is useful for someone else.