Quarterly Enrollment Period Issue

[khn]

Our plan has quarterly enrollments. A participant wanted to begin catch-ups with the quarterly enrollment. She adjusted her deferral to accommodate for the amount, but due to some miscommunication did not realize she had to also fill out a separate form to elect that she wanted to sign up for catchups.

I feel that we can self correct this and begin her catch ups now since it only a single situation and caught right away, rather than wait until the next enrollment period in January. Is my thinking correct?

[401king]

Is this a new participant, or someone adjusting their deferrals? If someone adjusting, then can they only adjust on a quarterly basis? The term 'self-correct' usually gets floated around only when the company has made a mistake, but it seems that the participant has made the mistake. If you allow an exception to quarterly deferral adjustments, then if the procedures are well documented and the same exception would be made in the future for someone else in a similar situation then I see no harm.

[khn]

This is a case of someone who is already participating adjusting their deferrals to allow for catchup contributions; according to our plan document we only allow deferral changes to be made on the quarterly enrollment dates. I think step one is we need to revise our procedures so participants are more clear on the process. Thank you for your response.

[rcline46]

Catchup 'happens'. One does NOT sign up for catchups. In your case khn, if someone who signed up for catchup terminates before deferring $18,000 in total, what do you do with the supposed catchup? unless you have a limit, if that person deferred $9,000 and elected an additional $3,000 for catch up, then the testing is for $12,000 and no catchup.

After all these years I find it surprising that payrolls are still separating catchup because that is a testing issue, not a payroll issue.

[GMK]

What rcline46 said!

But there are still "standard" forms out there that suggest that you can sign up for catch-up contributions. Come on, you document providers. Isn't life complicated enough without adding non-existent options for participants? [end of rant. sorry I blew up]

[david rigby]

Catchup 'happens'. ...

After all these years I find it surprising that payrolls are still separating catchup because that is a testing issue, not a payroll issue.

Minor caution: It can be a payroll system issue. A payroll system should include test(s) to make sure only those eligible for catch-up exceed the 401k limit, and also include the appropriate total (k-limit + catch-up limit).

But otherwise, what rcline46 said.

[K2retire]

So did the form that the person did complete include an amount or percentage high enough to get her to the desired catch up?

[khn]

Exactly...the person is 63 and included a percentage that would get her to the desired catchup for the first time, but our vendor requires a separate catchup election form be completed. Because she didn't complete it, she was capped at $18k. Seems illogical to me.

[GMK]

Check what your Plan Document says about Catch-Up Contributions.

In the Plan Doc for our 401(k), Catch-Up Contributions are defined in the Definitions section and in the Employee Contributions section. These sections say the usual things about catchups, namely, that they are elective deferrals made to the Plan that are in excess of any otherwise applicable Plan limit and that are made by Participants who are age 50 or older. The standard set of 'otherwise applicable limits' is listed in both sections. There is no mention of a need for a separate election to make catchup contributions.

Unless your Plan document prohibits Participants from making catchup contributions unless they separately elect to make catchup contributions, take your Plan Doc to the vendor and ask them to show you where it says that this person is capped at $18k. Personally, I would ask the vendor if they really want to be making a fiduciary decision to limit Participant contributions (unless the limitation is in the Plan Doc or is an instruction from the Plan Administrator). And then I'd start looking for a better vendor.

I'm a little peeved about this, because the change of deferral election form from our plan vendor has a section for electing catch-ups. We stamped "VOID" on the form and made our own deferral election change form. [Oops. I guess my previous post wasn't the end of my rant. My apologies.]

[Bird]

I'd consider this a clerical error (on the basis that the participant did nothing wrong), change the election to let the person do what they want, and move on.

And consider whether it really accomplishes anything to restrict changes to quarterly. I set up all of my plans to allow changes every payroll and have never had a problem with that causing too much activity, and the kind of problems discussed in this post simply do not exist. Generally, people set their deferrals and leave it alone. Having limited change periods might actually increase activity; people think they have to "do" something when the time comes up.