When do catch-ups occur?

If a person defers the full 402(g) basic limit with full catch-up, when do the catch-ups occur? If deferrals were pro-rata during the year, do they occur with each payroll period? Or do the catch-ups only occur in months after the basic 402(g) limit has been reached?

I understand that an amount is not a catch-up until the basic limit is deferred.

However, assuming the basic limit is met, what is the crediting date for the catch-ups? For fiscal year plans with 415 concerns, the timing of catch-ups is important, because catch-ups are not additions. My position has been that catch-ups are the last dollars contributed in a calendar year and are not pro-rated for tax purposes, regardless of how the TPA characterizes the timing. 

Catch-ups occur when you have exceeded a statutory or plan imposed limit.

If the plan has no restrictions on deferrals then catch-ups can generally occur in one of 3 ways:

1 - any contributions in the calendar year above the 402(g) limit that are not in excess of the catch-up limit.

2 - recharacterization of contribution due to failed APD test (it is recharacterized as of the last day of the plan year)

3. - recharacterization of contribution due to exceeding the 415 because of employer allocations. (it is recharacterized as of the last day of the plan year)

If the Plan has an imposed limit (like 5% of pay) I'm honestly not sure the date that the contribution is considered catch-up.

For non-calendar year plans it's possible to get 2 catch-up limits in one plan year if they exceed the 402(g) limit in the first part of the non-calendar year plan.

For the most part I agree with you that catch-up are generally the last dollar deferred.

Thanks, Lou.  Two catch-ups in the same fiscal year is exactly the situation I was thinking about. For tax purposes, it has to be the last dollars contributed in the calendar year.  

In plans where catchups are not matched, there is an interesting twist. Some TPAs have annualized the two limits (basic and catch-up) and treat catch-ups as being made ratably throughout the year. This leaves the participant who discontinues deferrals in the middle of the calendar year short of match, because the non-matched catch-up was not really a catch-up when all deferrals are tallied for the year. I don't think the typical payroll match election in prototypes addresses this. The participant is owed a true-up.   

Note that (although I have never seen it) it is possible that "catch-up contribution" in terms of what isn't matched is defined in the plan document differently from how the IRS defines "catch-up contribution."  In general though, I agree with the preceding post that this is an area where operational practice often differs from what is required by the plan document.

While reading about not matching catchups and the timing, a thought came to mind.

What happens if a plan has match that is payroll based and the company deposits it with each deferral.

Participant is an HCE who defers $15,000.  After the ADP test is run, it fails and $3,000 is recharacterized as catch-up.  

Do we have to go back and forfeit all the matches working backward until the $3,000 deferal mark is hit?

I think you do have to forfeit the related match amounts. 

I'd have to think about whether it's FIFO or LIFO on the reduction.  (Something from the 90s tells me the first dollars in are the ones you adjust for but I can't say why that may or may not be right.  Thinking about earnings calculations and IRS safe harbor methods....)

It's not related match, really.  In this case, if the plan matched catch-ups, we wouldn't be forfeiting anything.

It's just that some of the deferrals are being recharacterized and moved out of the test.

On 8/5/2022 at 10:29 AM, BG5150 said:

Do we have to go back and forfeit all the matches working backward until the $3,000 deferal mark is hit?

Yes.  If the plan document provides that "catch-up contributions" are not matched and the document defines "catch-up contributions" the same way as the Code and regulations instead of as contributions initially regarded by payroll as catch-up contributions, then the related match will need to be treated as forfeitures to comply with the written plan document.