Fiscal Year Failed ADP and Catch Up

[Vlad401k]

The sponsor has a plan year with fiscal year end of 6/30.

 

Let's say that this is the scenario:

 

1/1/2016 to 6/30/2016 - The owner deferred $9,000

7/1/2016 - 12/31/2016 - The owner deferred $15,000

1/1/2017 - 6/30/2017 - The owner deferred $12,000

 

The plan started on 1/1/2016 and there were no deferrals before that. Let's say the owner is catch up eligible and we're running the test for plan year 7/1/2016 to 6/30/2017.

 

The plan failed ADP test for the plan year ending 6/30/2016 and $1,500 had to be re-characterized as catch up.

 

For plan year ending 6/30/2017, the plan failed the ADP test again. The question is, what is the catch up limit for this plan year that can be used to re-characterize the deferrals for the owner. The owner deferred $15,000 + $12,000 = $27,000 for plan year ending 6/30/2017, but how would that show up in the failed ADP test?

 

 

[Larry Starr]

I'm only going to claim 90% expertise on this and I don't have time right now to check my answers, so if anyone finds a mistake, please feel free to correct.

Having made the appropriate warning, I see two questions in your posting.

First, his catch up for the plan year ending 6/30/17 is the catch up available for calendar year '17, which is $6,000.

Second, I'm not sure what you mean when you say "how would that show up in the failed ADP test". You say you ran the ADP test; so I ask you, how did it show up (not knowing what that really means)?  What are you really asking here?

[Lou S.]

For calendar year 2016 he has a maximum catch-up of $6000.

You failed the ADP test for PYE 6/30/16 and recharaterized $1,500 as catchup so he has $4,500 possible left for 2016. Since he defered the full $24,000 in CYE 2016, of the $15,000 deferred 7/1/16-12/31/16 $4,500 is catchup and $10,500 goes into the test for PYE 6/30/17.

In 2017 he has not yet hit the 402(g) limit so all $12,000 goes into the test.

For the 7/1/16 - 6/30/17 PYE the deferral in the ADP test are $10,500 + $12,000 = $22,500.

If the plan fails you can recharaterize up to the 2017 cacthup limit of $6,000.

 

 

[Larry Starr]

23 hours ago, Lou S. said:

For calendar year 2016 he has a maximum catch-up of $6000.

You failed the ADP test for PYE 6/30/16 and recharaterized $1,500 as catchup so he has $4,500 possible left for 2016. Since he defered the full $24,000 in CYE 2016, of the $15,000 deferred 7/1/16-12/31/16 $4,500 is catchup and $10,500 goes into the test for PYE 6/30/17.

In 2017 he has not yet hit the 402(g) limit so all $12,000 goes into the test.

For the 7/1/16 - 6/30/17 PYE the deferral in the ADP test are $10,500 + $12,000 = $22,500.

If the plan fails you can recharaterize up to the 2017 cacthup limit of $6,000.

 

 

Yup; all agreed.