Catch up when regular deferrals split between 2 plans

[Guest k-k-kuz]

A sole proprietor financial consultant has a 401k plan. She just became a 'statutory employee' for an investment company for which she is a sales agent. The investment company also has a 401k plan, and matches dollar for dollar. She expects about $10,000 in sales commissions for November and December 2009. The plan there allows for her to defer 100%, and so she would like to put all $10,000 into that 401k plan and get the match.

She would like to put $12,000 into her own 401k plan for 2009 as well--she's over age 50.

Can she put the catch-up $5,500 into her own 401k plan after just putting $6,500 of regular 401k deferrals into that 401k plan?

The language in her 401k plan does say one way or the other.

[masteff]

If the plans are unrelated, then each plan calculates catch-up separately. So while the extra $5,500 counts as catch-up with respect to her personal taxes (for purpose of determining excess deferrals), it's not classified as catch-up by the plan unless regular deferrals IN THAT PLAN have exceeded the regular 402(g) limit. To put it in different words: plan A doesn't care what happened in plan B, except to help the participant not have excess deferrals in total.

[QDROphile]

A well drafted plan will consider elective deferrals under other plans that count against the limit if the plan is advised of the other deferrals. That will allow designated catch up amounts that would otherwise exceed the section 402(g) limit. Even if the plan does not consider other amounts and treats the deferral as withn the lower limits, unless the plan is poorly drafted, the excess is still a catch up whether or not so designated. A well drafted plan will not depend on the "catch up" label.

[PLAN MAN]

A well drafted plan will consider elective deferrals under other plans that count against the limit if the plan is advised of the other deferrals. That will allow designated catch up amounts that would otherwise exceed the section 402(g) limit. Even if the plan does not consider other amounts and treats the deferral as withn the lower limits, unless the plan is poorly drafted, the excess is still a catch up whether or not so designated. A well drafted plan will not depend on the "catch up" label.

Just came across this today- if I am understanding QDROphile's comments correctly, a well drafted plan would designate the appropriate deferrals as catch-up even though the deferrals in that plan did not exceed the 402(g) limit. So that leads to the question:

QDROphile, do you know of a "well drafted" prototype plan document? Can you suggest any specific language that may be added to the adoption agreement for a plan to allow it to operate in this manner? Thank you.

[QDROphile]

There are no well drafted prototype plan documents. It is almost a logical impossibility.

[ETA Consulting LLC]

You know, there is important distinction between 401(a)(30) and 402(g). Catchups are, typically, defined as an excess of the 401(a)(30)limit; which is the 402(g) limit to all plans of a single employer. Under this method, one plan doesn't have to worry about (nor incorporate) what any plan of any other employer is doing; leaving it totally up to the participant. Barring written language in a plan to actually impose a limit based on what was contributed to another plan, then there would be little precedent to arbitrarily make those amounts catchup just because deferrals were made to a plan of another employer.

Just something to consider.

Good Luck!