ADP Testing

[Guest elang]

Seems like an absurd question, but I ask because I have now seen this done on more than one plan. When completing the ADP test, can the first $5,500 of deferrals for a participant over 50 be considered catch-up, or must the participant first reach the “deferral limit” or “employer provided limit” before any additional deferral is considered catch-up?

[chc93]

Salary deferrals can only be classified as catch-up if a limit is exceeded... 402g, 415, plan provision. Otherwise, no catch-up when doing the ADP test. For example, if $16,500 deferral, and no other limits are exceeded, $16,500 has to be in ADP test.

[Tom Poje]

and so the following could occur

2 owners

HCE 1 (age 55) 55,000 comp 5,500 deferral 10% ADP

HCE 2 (under 50) 55,000 comp 5,500 deferral 10% ADP

HCE Avg 10%

NHCE avg 6%

so plan fails and there would be some catch up for HCE1 and some distrib to HCE 2

if you could count catch up first then HCE1 would be 0% and the avg would have been 5%, and passing.

[BG5150]

Salary deferrals can only be classified as catch-up if a limit is exceeded... 402g, 415, plan provision. Otherwise, no catch-up when doing the ADP test. For example, if $16,500 deferral, and no other limits are exceeded, $16,500 has to be in ADP test.

However, if the test fails, an HCE can have all or a portion of the deferrals classified as a catch-up to offset a refund to that person. It doesn't help the test, but it does mitigate the amount of the refund.

[Guest jkhan]

If your plan fails ACP but passes ADP, you can always shift percentage from ADP (by recharacterizing) to pass the ACP.