must catch-ups be matched in a safe harbor 401k plan?

[Santo Gold]

Is it required that catch-up contributions be matched in a safe harbor 401k plan?

Thanks

[Tom Poje]

yes, there is no exception under the safe harbor rules that apply to catch-ups.

[rcline46]

It would be quite interesting to see a fact pattern where a Safe Harbor Match was actually applied to a catch up.

[BG5150]

It would be quite interesting to see a fact pattern where a Safe Harbor Match was actually applied to a catch up.

Profit Sharing of $46,000 and a deferral of $5,000? The deferral would be considered catch-up. [for 2008]

[rcline46]

You got me - I have even done some of those! Ohhhhhhhh - Match then causes 415 to fail! That is why I was looking for a real example. At 25% of pay, $46,000 means $184,000 in comp (oh, but the match counts against the 25% limit - more complications) and the deferral is only 2.72% of pay which means if HCE, the NCE ADP would only have to be 1.36% of pay, and likely a QNEC would be better than a SH match, etc, etc, etc.

I have not yet seen a real case where the SH match has made it into the catch up amount.

[Guest dbvail]

Maybe I missed something, but as I see it and employee can defer $20,500 in 2008, and all of it would be subject to match. I believe that may have been the OP question. IRC Sec 415 is not in play.

Real life: EE earns $2,885/week ($150,000 annual) and defers $395/wk all year long to get to $20,500. 4% of the weekly pay is $115, and it would be applied to all 52 weeks, thus "matching the catch-up". What did I miss?

[BG5150]

Maybe I missed something, but as I see it and employee can defer $20,500 in 2008, and all of it would be subject to match. I believe that may have been the OP question. IRC Sec 415 is not in play.

Real life: EE earns $2,885/week ($150,000 annual) and defers $395/wk all year long to get to $20,500. 4% of the weekly pay is $115, and it would be applied to all 52 weeks, thus "matching the catch-up". What did I miss?

$395 / $2,885 is 13.69%. The match is only made on the first 4% of that. So, even though the matches are made every week, it doesn't mean the match is being made on catch-up.

rcline: how about this: plan limits HCE's to 2% deferrals (holdover from when the plan always failed the adp test). She makes $100,000, and so defers the $2,000 (2% of pay) plus another $5,000, total $7,000 in deferrals. Her SH match would be $4,000, wouldn't it? Two thousand of which would be attributable to the catch-up.

[Guest dbvail]

I agree.

In my example the 402(g) limit would have been reached by week 39 (39x395=$14,405). But he would continue to defer for the rest of the year and would therefore be matched on the catch-up.

[rcline46]

dbvail - the catch up is NEVER matched in your example - the math just does not get there. Even though it 'appears' after week 39 the deferrals will be applied (at the end of the year!) to catch up, the deferrals are not reclassified at catch up until the year end. Until then they are just deferrals. THe math at year end gives a Safe Harbor Match of 4% ($6,000) on $150,000. Since the deferrals are either 13.67% or 10.33% and the SH match can only be on deferrals up to 6% of pay, the math just is not there. You may be making the leap that a deferral is classified as catch up when made, and that is not the case.

bg5150 - remember the OP was about SAFE HARBOR match, and if you have a Safe Harbor plan which limits the HCEs....... that is a really big OOPPPS. If it is not a SH plan, and HCEs are still limited to 2% of pay - somebody has really failed the client.

SO, anyone can make up plans where it MIGHT match on Safe Harbor, but has anyone seen a real plan where it has happened?

[K2retire]

Slight adjustment to post # 4 will fit the bill. PS of $46,000 less enough to allow for the SH match. Deferral of $5,000 doesn't become catch up until the 415 failure, but would result in catch up receiving a SH match.

Granted it's not likely -- but it COULD happen.

[Ann P. West]

Slight adjustment to post # 4 will fit the bill. PS of $46,000 less enough to allow for the SH match. Deferral of $5,000 doesn't become catch up until the 415 failure, but would result in catch up receiving a SH match.

Granted it's not likely -- but it COULD happen.

I'm digging up this old post to be sure that I'm not giving a client bad advice. Would like your thoughts.

In the example where EE earns $2,885/week ($150,000 annual) and defers $395/wk all year long to get to $20,500 (using the old 402(g) and catch up limits). 4% match of the weekly pay is $115, and it would be applied to all 52 weeks. I agree with rcline46 that at year end looking at totals the matching contribution can all be applied to the deferrals and therefore, thoeretically, there are no matching contributions on the catch up. However, from a practical standpoint and from the client's perspective, if matching contributions are being made monthly without a year end true up, they are required to match those deferrals made by the catch up eligible person after the $15,500 limit is reached. Therefore the catch up eligible person gets a match of $6,000 in this example and the non-catch up eligible person gets a match of only about $4,500 even though they made the same 4% deferral election. I think you would be hard pressed to convince the client that they are not really matching on "catch up" contributions in this scenario. The client must program their system to continue applying the matching contribution each month to those deferrals made after the 402(g) limit is reached. If they stopped making matching contributions on deferrals made after the 402(g) limit is reached then they do not satisfy the safe harbor matching requirements.

[austin3515]

I'm not sure it was clear what advice you are giving your client, but the issue seems to be perfectly moot. As was made pretty clear in the very first post, catch-ups MUST be matched for a SH Plan. So whether deferrals are catch-up or not, is irrelevant. All that matters is whether or not it's 401k, which obviously it is. So it needs to be matched.

So I presume your advice to your client was "make sure all 401k gets pulled into the match calc, whether catch-up or otherwise."

I think some of the discussions above are very very interesting when you talk about a REGULAR match that is funded during the year. It seems to me that excluding catch-ups from the match could have some very bizarre consequences.

[gregburst]

I realize this is an old thread, but does anyone have the specific IRC section that mandates that catch-up contributions be eligible for safe harbor matching?

[Paul I]

Check out the preamble to regulations regarding

Retirement Plans; Cash or Deferred Arrangements Under Section 401(k) and Matching Contributions or Employee Contributions Under Section 401(m) Regulations
published in the Federal Register / Vol. 69, No. 249 / Wednesday, December 29, 2004 page 78151

"The proposed regulations did not include any exception to the requirements for safe harbor matching contributions with respect to catch-up contributions. As part of the proposed regulations the IRS and Treasury solicited comments on the specific circumstances under which elective contributions by an NHCE to a safe harbor plan would be less than the amount required to be matched, e.g., less than 5% of safe harbor compensation, but would be treated by the plan as catch-up contributions, and on the extent to which a safe harbor plan should be required to match catch-up contributions under such circumstances. After reviewing the comments and the applicable statutory
provisions (including the amendments to section 414(v)(3)(B) made by the Job Creation and Worker Assistance Act of 2002, (JCWAA) (Public Law 107–147)), the IRS and Treasury have determined that no such exception is appropriate."
 

Basically, the safe harbor match applies to all deferrals and, the IRS having thought about it, decided not to make an exception for catch-up contributions.