New Q -- Catch-Up Issue - Off-Calendar Year Plan

[Guest lvegas]

Changed My Question:

Employer maintains 2 plans: Plan 1: calendar year 401(k) and Plan 2: off-calendar dc plan with only employer contributions.

Plan 1 fails 2009 ADP test. $1,000 of Participant A's excess deferrals are treated as catch-up contributions.

No 415 problems on aggregate basis or otherwise.

Plan 2 tests 2009-2010 fiscal year 415 (on aggregate basis) counting 401(k) salary deferrals made during fiscal period plus employer contributions for same period. Participant A's annual additions for fiscal period exceeds 49,000 by $5,500 (because salary deferrals are not limited on fiscal year basis). Does Participant A get benefit of full catch-up, or does $1,000 recharacterization under and for purposes of Plan 1's ADP issue reduce the available amount to the fiscal year plan?

[Kevin C]

Assuming there were no fiscal year end 2009 415 issues and the participant deferred at least $5,500 during the PS plan's 2009-2010 plan year, I think:

The $1,000 from the failed ADP test becomes catch-up at 12/31/2009 so it is applied towards the 2009 catch-up limit.

Total allocations for fiscal year ending 2010 were $54,500, including the $1,000 2009 catch-up. That leaves $53,500 to count as annual additions for 415. The excess, $4,500, becomes catch-up at fiscal year end 2010 and applies towards the 2010 catch-up limit.

[Guest lvegas]

OK - I read through another off-calendar year plan thread from '08 and was confused a bit... so I present a tweaked example by taking out the ADP test recharacterization in an attempt to get a better understanding of the general premise of your answer:

Same Plans 1 (CY 401(k)) and 2 (FY P/S)

2009 CY Aggregated Test (401(k)):

Participant defers 22,000 under Plan 1 and has p/s contribution of 29,400 under Plan 2 = total allocations of 51,400

Less 5,500 catch-up = total allocations of 45,900 (amounts are also returned per ADP test, but catch-up already used; still count as allocations)

Below 49,000 limit, so no 415 issue

2010 FY Ending 7/1 Aggregated Test (P/S):

P defers 22,000 (ratably over 12 months) under Plan 1 and has p/s contribution of 39,200 under Plan 2 = total allocations of 61,200.

Does that 61,200 include:

(1) 5,500 for 2009 CY catch-up, leaving 55,700, of which 5,500 is 2010 FY end catch-up, leaving 1,200 as a 415 excess (seemingly getting the benefit of 2 years of catch-up?); OR

(2) 5,500 for 2009 CY catch-up that also eats up 2010 FY catch-up, leaving 55,700, of which 6,700 is 415 excess?

2010 CY Aggregat ed Test (401(k)) [EDITED]:

Participant defers 22,000 under Plan 1 and has p/s contribution of 39,200 under Plan 2 = total allocations of 61,200, including 5,500 2010 FY catch-up that counts as 2010 CY catch-up

That leaves 55,700 allocations for 2010 CY, of which $6,700 is 415 excess. Or am I wrong?

Sorry if too confusing -- I am looking at the aggregated testing rules for 1.415(j) and other than pointing out that each plan is tested on its own to include allocations made to another plan during the tested plan's limitation year as having been made during the tested plan's limitation year, it doesn't shed too much light...thanks

[Kevin C]

You should also look at the timing rules for catch-ups in 1.414(v)-1. It spells out when amounts are determined to be catch-ups in different situations. That will help you determine which fiscal year the respective catch-ups fall in.

Before I get to your revised question, when is the PS contribution allocated? The reason I ask is you are listing $39,200 of PS allocated during the fiscal year ending in 2010, but only $29,400 of PS contribution allocated during calendar year 2010. I normally see PS allocations at the end of the plan year, so I expected these amounts to be the same.

[Guest lvegas]

You should also look at the timing rules for catch-ups in 1.414(v)-1. It spells out when amounts are determined to be catch-ups in different situations. That will help you determine which fiscal year the respective catch-ups fall in.

Before I get to your revised question, when is the PS contribution allocated? The reason I ask is you are listing $39,200 of PS allocated during the fiscal year ending in 2010, but only $29,400 of PS contribution allocated during calendar year 2010. I normally see PS allocations at the end of the plan year, so I expected these amounts to be the same.

Year end - sorry, the contribution rate changed - and I went back and changed the 2010 CY example. Thanks for your help.

I did check out the 414(v) regs and they are not exactly crystal clear on this, at least to me.

[Guest lvegas]

I've found a couple of other threads here to indicate that seem to indicate that option 1 above is supportable. See: http://benefitslink.com/boards/index.php?showtopic=45053 and http://benefitslink.com/boards/index.php?s...hl=off-calendar

[Kevin C]

1.414(v)-1©(3) Timing rules. --For purposes of determining the maximum amount of permitted catch-up contributions for a catch-up eligible participant, the determination of whether an elective deferral is a catch-up contribution is made as of the last day of the plan year (or in the case of section 415, as of the last day of the limitation year), except that, with respect to elective deferrals in excess of an applicable limit that is tested on the basis of the taxable year or calendar year (e.g., the section 401(a)(30) limit on elective deferrals), the determination of whether such elective deferrals are treated as catch-up contributions is made at the time they are deferred.

Deferrals in excess of 402(g)/401(a)(30) become catch-ups as they are deferred. Catch-ups from ADP testing for the calendar year 401(k) plan become catch-ups as of 12/31. Catch-ups from the calendar year 401(k) plan's 415 testing become catch-ups as of the end of the 401(k) plan's limitation year. Catch-ups from 415 testing for the fiscal year PS become catch-ups at the end of the PS plan's limitation year.

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.

The catch-up limit applies for the participant's taxable year, which will almost always be the calendar year. For a catch-up eligible participant, they start with the full catch-up limit on 1/1. The timing rules determine when amounts are applied towards the catch-up limit, until either the limit is reached, or the taxable year ends. The next 1/1 you start again with a new limit.

With two plans having different plan years, you are looking at for 415 each plan using amounts allocated during that plan's limitation year. The catch-up timing rules tell you when the catch-ups happen, so you know which limitation year they fall in for each plan's 415 testing. Catch-ups are not counted as annual additions under 415.

1.414(v)-1(d)(1) Contributions not taken into account for certain limits. --Catch-up contributions are not taken into account in applying the limits of section 401(a)(30), 402(h), 403(b), 408, 415©, or 457(b)(2) (determined without regard to section 457(b)(3)) to other contributions or benefits under an applicable employer plan or any other plan of the employer.