Fiscal year / catch-up / ADP test

[Guest JPIngold]

I must be overthinking this issue, but I am going back and forth with my administration software support on the issue of deferrals in a fiscal year, adp failures, and catch-ups. I see some old threads on this, but am just not sure how to wrap my arms around it.

The facts:

Fiscal 10/31 plan. An HCE defers $1,500 from 11/1/08 to 12/31/08 (none of which is catch-up due to 402(g)) and then defers $18,700 from 1/1/09 to 10/31/09. So, his total deferrals are $20,200 for the plan year, $2,200 of which are 2009 catch-up due to 402(g) limit. The ADP test fails and his refund is calculated as $3,650. Since he still has $3,300 left in his 2009 catch-up, he only has to take a $350 refund. So, at this point, he has deferred $18,700 in calendar 2009 and has used up his $5,500 catch-up.

Administration software tells me that his 402(g) deferrals are only $13,200 for 2009 as of 10/31/09 ($18,700 - $2,200 - $3,300) and he can still defer another $3,300 in 2009.

There seems to be a logic problem here.

My problem is this ..... if this were a calendar year plan and I defer $22,000 and the ADP test fails and I get a $3,652 refund, I end up with $18,348 in the plan when all is said and done and, therefore, have a net tax deduction for the year of $18,348.

So, why, just because I have a fiscal year, can I do what they are telling me and have $22,000 deposited in the plan (the $18,700 I already have and the $3,300 they tell me I can still contribute in 2009), fail the test by $3,650, get a $350 refund, meaning I end up with $21,650 in the plan (and, therefore, a $21,650 net tax deduction).

It sure seems like I just got a $3,300 windfall just because I have a fiscal year.

[Kevin C]

Take a look at Examples 5 & 6 in 1.414(v)-1(h). They both deal with non-calendar year plans.

Here is a similar post:

http://benefitslink.com/boards/index.php?showtopic=38597