Catch up eligible employee across unrelated employers in one MEP

[NW529]

We have a catch-up eligible employee who is participating in two "plans" adopted by unrelated employers. The employers are part of the same MEP, but tested separately. 

If the participant is due an ADP test refund in both plans, can we use up to $6,500 catch up to offset in each plan? 

I believe the regs allow catch up offset exceeding $6,500 across unrelated employers in SEPs, but we are wondering if the same rules apply to an MEP. 

[Mike Preston]

What does the document say?

[Kevin C]

Does the document address it?  Our VS document includes multiple employer plan language, but it doesn't address this.  I don't see anything in our reference materials on it either. I'll give it a try.  

The reason you have a separate ADP/ACP test for unrelated employers in the MEP is the definition of "plan" in the 401(k) regs that incorporates the mandatory disaggregation and permissive aggregation rules of 1.410(b)-7. [see 1.401(k)-4(b)(4)] . Looking at the catch-up regs, you'll see the term "applicable employer plan" throughout.  It's defined in 1.414(v)-1(g)(1).  In particular, the catch-up limit applies to an "applicable employer plan". I don't see anything in the catch-up regulations that incorporates 1.410(b)-7, so it appears to me that the term "applicable employer plan" is referring to the MEP plan as a whole.  That would mean a single $6,500 catch-up limit for the entire MEP.

 

If the participant were in two separate plans of unrelated employers, it's clear that the catch-up determination in one plan doesn't affect the catch-up determination in the other unrelated plan. It's a different result because there would be two unrelated applicable employer plans, not a single plan.   

[Luke Bailey]

I agree with Kevin C. Note that 414(v)(6)(A)(i) defines "applicable employer plan" for this purposes as the trust. The MEP has a single trust, even though there are separate "plans" in it for some testing purpoes. Treas. reg. 1.414(v)-1(g)(1) just says a "401(k) plan" without any further gloss, so supports as well, although less pointed than the statute on this issue.