Participant's only contribution classified as catch-up; not matched.

[ERISA-Bubs]

A participant signed up to make catch-up contributions to the 401(k) but did not sign up to make any other (non-catch-up) contributions. Catch-up contributions are not matched under the Plan. Is the employer required to re-classify the catch-up contributions as regular (non-catch-up) contributions to make sure the participant receives matching contributions? Can that be done at the end of the year (the plan doesn't have a true-up), or must that be done as contributions are made?

[Lou S.]

How do you sign up for "Catch-up contributions only"?

You can't make catch-up contributions until you have hit some applicable limit, either plan imposed or IRS imposed.

[ERISA-Bubs]

Apparently the system allows participants to choose how to classify the contributions. I'm not sure if this is allowed, though, and if the employer is required to re-classify the contributions as non-catch-up since the participant didn't hit any applicable limit.

[BG5150]

A deferral is a deferral is a deferral.

Until you hit a limit:

402(g)

ADP Test failure threshold for an HCE

Plan-imposed deferral limit

415

Then, if the participant is 50 years or older at any time during the year, up to $6,000 (for 2016) can be considered "catch-up."

Anything above those amounts, are treated as an excess pertaining to whatever limit they exceeded.

By "system" do you mean a payroll program? Or is it the record keeper's software? Or the TPA's software?

[ERISA-Bubs]

It's the record-keeper's software. I've never seen it done like this before and I didn't even know it was an administrative set-up until today.

[Belgarath]

Is it possible that the participant has maxed out on deferrals in another plan somewhere, so is eligible for catch-up only?

[ERISA-Bubs]

Is it possible that the participant has maxed out on deferrals in another plan somewhere, so is eligible for catch-up only?

It is, and we're looking into that possibility.

[Lou S.]

Is it possible that the participant has maxed out on deferrals in another plan somewhere, so is eligible for catch-up only?

Is it possible that the participant has maxed out on deferrals in another plan somewhere, so is eligible for catch-up only?

It is, and we're looking into that possibility.

Unless it is a related employer though it wouldn't matter. As far as this plan is concerned it's not technically a catch-up contribution at this point.

[ERISA-Bubs]

Unless it is a related employer though it wouldn't matter. As far as this plan is concerned it's not technically a catch-up contribution at this point.

By "at this point" I assume that you mean that it will become a catch-up contribution at the end of the year when we do testing and find that he maxed out under a previous employer?

How does this practically work? I know the $18,000 limit is on all plans, but how do we go about figuring out whether any of our employees contributed to any other plans in order to make sure no one exceeded the limits? Do we just have to wait for our employees to do their taxes and inform us? And, if so, do we have to constantly be re-doing testing, tax reports, etc. every time this issue comes up?

[Lou S.]

If a person over age 50 puts 12K in one employer plan and 12K in another unrelated employer plan then the both plans would put the full 12K in each ADP test. As far as they are concerned he hasn't hit any applicable limit, assuming the plan doesn't impose some limit below the $12K in my example.

[BG5150]

^ and the taxpayer can claim the $6,000 over 402(g) as a "catch-up", but neither plan is affected.

So, the only concern for this plan (or the other one) is if the participant contributed more than $24,000 combined. And if it's split up between two or more plans, it's up to the participant to notify one or more of the plan administrators of his error.

[ERISA-Bubs]

If a person over age 50 puts 12K in one employer plan and 12K in another unrelated employer plan then the both plans would put the full 12K in each ADP test. As far as they are concerned he hasn't hit any applicable limit, assuming the plan doesn't impose some limit below the $12K in my example.

^ and the taxpayer can claim the $6,000 over 402(g) as a "catch-up", but neither plan is affected.

So, the only concern for this plan (or the other one) is if the participant contributed more than $24,000 combined. And if it's split up between two or more plans, it's up to the participant to notify one or more of the plan administrators of his error.

OK, so we should classify it as a non-catch-up contribution regardless of what happened in any other plans and give him match. Do you see any issues with waiting to the end of the year and re-classifying it then, or should we be matching every pay period and go back and fix earlier pay periods?

[Lou S.]

If the Plan is matching on a per payroll basis, probably best to fix it now and going forward. Sounds like it is an administrative system that needs some updating.

[ETA Consulting LLC]

How do you sign up for "Catch-up contributions only"?

You can't make catch-up contributions until you have hit some applicable limit, either plan imposed or IRS imposed.

Is it possible that the participant has maxed out on deferrals in another plan somewhere, so is eligible for catch-up only?

Is it possible that the participant has maxed out on deferrals in another plan somewhere, so is eligible for catch-up only?

It is, and we're looking into that possibility.

Unless it is a related employer though it wouldn't matter. As far as this plan is concerned it's not technically a catch-up contribution at this point.

If a person over age 50 puts 12K in one employer plan and 12K in another unrelated employer plan then the both plans would put the full 12K in each ADP test. As far as they are concerned he hasn't hit any applicable limit, assuming the plan doesn't impose some limit below the $12K in my example.

If the Plan is matching on a per payroll basis, probably best to fix it now and going forward. Sounds like it is an administrative system that needs some updating.

Thank you, Lou. I don't think I have anything else to add. Maybe one thing. If some who's 50 (or older) is making $1million a year and choose to defer 6% of salary. I never understood the notion of asking that person would they want to defer at $18,000 or $24,000. Just take the 6% until you hit their eligible limit. Anything else would appear to be overthinking an otherwise simple concept.

Good Luck!

[Tom Poje]

there is (or at least used to be) at least one investment house that has a deferral source and a catch-up source, for whatever reason, so possibly that is the reason there is a classification of 'catch-up' contributions, even though it makes no sense, because, as noted above, you don't have a catch-up until you hit a limit. but maybe that is what is going on.

ugh, always hated getting a takeover case from that investment house, just the extra work involved, especially if they had loans taken from the sources. always glad to switch the investment house at that point.

[GMK]

Our provider's deferral election change form has sections for electing a regular deferral rate and a catch-up deferral rate, ...

so we use our own form that simply asks, 'How much do you want to defer?'

If they hit a limit, the rest is catch-up.

The initial enrollment form asks for a deferral rate election, and not a separate catch-up rate ... which is good.

[Eric Taylor]

All,

We have a similar situation where the participant was permitted to check catch-up deferrals as a separate election item and checked that but made no regular deferrals.  Record keeper system is supposed to catch / prohibit this but did not do so for last few months of 2016.  There are matches on the regular deferrals but none on catch-ups so participant's money was timely deferred and invested in plan but not matched.  Obviously some work needs to be done to ensure system prohibits such problems in the future including possible changes to form but on the specific correction issues, is this as simple as re-classifying the erroneous catch-up deferrals (and earnings) as regular deferrals then adding the missed match (and earnings) or do we have to do this as QNECs or take other corrective steps.  Isolated case and relatively limited dollars for the plan overall so we would think fine to self-correct without seeking approval but want to be sure we do it the proper way.  Thanks.

[BG5150]

Just make the match and correct the deferrals going forward.