When are deferrals a catch-up contribution?

[cheersmate]

If an age 50+ participant contributed $18,000 for the 2015 Plan Year, can the employer make a Profit Sharing contribution of $41,000 and remain in compliance with 415 limits?

The participant had elected to contribute the maximum 401k + catch up limit of $24,000 for 2015 PY, however the payroll company ceased withholding Oct 2015... end result is only $18,000 deferred in 2015. Starting Jan 2016, withholding commenced again.

In light of the fairly recent IRS 3 new safe harbor procedures correcting missed elective deferrals, this employer seems to meet the 3 month correction period, therefore no makeup contribution required.

To make this participant whole, the employer would like to contribute $41,000 in Profit Sharing provided the $18,000 deposited can be characterized as $12,000 401k and $6,000 in catch-up by making such a contribution -- the reasoning being the "recharacterization" is necessary to comply with 2015 415 limits.

Thoughts? Thank you.

[Lou S.]

Yeah, no problem we do it all the time.

Had an auditor question it one time but as soon as she ran it by her supervisor it was not an issue any more.

edit - this was an IRS audit, not an annual independent audit just to clarify.

[cheersmate]

Thank you Lou S. Can you provide the code or regs used in defense of the auditor's questioning it?

Yeah, no problem we do it all the time.

Had an auditor question it one time but as soon as she ran it by her supervisor it was not an issue any more.

edit - this was an IRS audit, not an annual independent audit just to clarify.

The election form for this participant indicates the 401k + catch up will be withheld ratably through out the year. Given this and how the payroll error would you still be comfortable recharacterizing it?

Or would the employer be limited to only recognize $4,500 as catch-up (3/4 of the contribution made since contributed 9 of the 12 months)?

Again thank you!

[Lou S.]

Your original post has the answer in the "any limit". It is recharaterized due to the 415 limit.

In our case it was an owner and spouse over the 401(a)(17) comp limit who each made 401(k) = to the catch-up limit of the year being audited and a PS contrib equal to the 415© limit that year causing 100% of their deferral to be recharaterized as catch-up.

I think it is in the code or regs of 414(v) ? the section dealing with catch-ups.

Slightly different facts than yours but pretty sure the logic still holds.