Catch-up possible if no comp?

[Guest Pennysaver]

Hypo:

HCE will have zero compensation for Plan Year.

415 limit will therefore be zero.

HCE wishes to make catch-up contribution.

Possible? Or impossible?

The Code and Regulations address catch-up in the context of elective deferrals. If a catch-up is an elective deferral, how can a catch-up contribution be made in this hypo when there is no compensation from which to make the elective deferral?

[Guest Sieve]

Impossible.

I would analyze as follows:

• A catch up contribution has to be an elective deferral. (IRC Section 414(v)(1).)
  
• An elective deferral is an employer contribution under a cash or deferred arrangement. (IRC Section 402(g)(3)(A).)
  
• A cash or deferred arrangement is defined to include the requirement that "the amount that each eligible employee may defer as an elective contribution [must be] available to the employee in cash." (Treas. Reg. Section 1.401(k)-1(e)(2)(i).)
  
• So, where there is no cash available to the employee, there can be no cash or deferred arrangement for that employee, and therefore there can be no elective deferral for that employee, and therefore there can be no catch-up contribuition for that employee.
  

[Kevin C]

Here is a more direct cite:

1.414(v)-1©(1) General rule. --Elective deferrals with respect to a catch-up eligible participant in excess of an applicable limit under paragraph (b) of this section are treated as catch-up contributions under this section as of a date within a taxable year only to the extent that such elective deferrals do not exceed the catch-up contribution limit described in paragraphs ©(1) and (2) of this section, reduced by elective deferrals previously treated as catch-up contributions for the taxable year, determined in accordance with paragraph ©(3) of this section. The catch-up contribution limit for a taxable year is generally the applicable dollar catch-up limit for such taxable year, as set forth in paragraph ©(2) of this section. However, an elective deferral is not treated as a catch-up contribution to the extent that the elective deferral, when added to all other elective deferrals for the taxable year under any applicable employer plan of the employer, exceeds the participant's compensation (determined in accordance with section 415©(3)) for the taxable year. See also paragraph (f) of this section for special rules for employees who participate in more than one applicable employer plan maintained by the employer.

[Guest Sieve]

That is a more direct route to the answer, isn't it? Too bad I didn't see it. But, after all, I charge by the hour . . .