ADP test for fiscal year plan: use leftover catchup from previous calendar year?

Someone suggested this might be a way to help a failing plan fail less badly, and it's something I never would have thought of... is that because it's too out there, or because I'm too conservative?

6/30 plan year 401k plan, non-safe harbor is failing ADP test.  It failed 6/30/21, too, but by recharacterizing $1,200 of the sole HCE's deferrals, a refund was avoided.  For 6/30/22, the same sole HCE doubled his deferrals so is failing much worse.  He deferred $28,100 for the plan year (not exceeding any calendar year limits), so even when subtracting the catchup, he still needs a refund of $6,700.

The thought was that there's $6,500 - $1,200 = $5,300 of catchup that was unused from the previous calendar year - can that be used in this plan year somehow as well?  Either to reduce the starting deferrals that are used to calculate the ADP test ($28,100 - $6,500 = $21,600 currently), or to partially offset the amount that is slated to be refunded ($6,700 currently)?

Thanks.

It depends on the timing of his deferrals. Did he exceed the 402(g) limit in the 2021 calendar year? If he didn't exceed the 2021 402(g) limit you won't be able to recharaterize any of his July 1, 2021 - December 31, 2021 (assuming there is no plan imposed limit that might make it catch-up) because he hasn't exceeded any applicable limit. And you'll essentially "lose" the remaining $5,300 2021 catch-up. If he deferred over $20,700 in calendar year 2021 any deferrals between that amount and $26,000 can be recharaterized because you have exceed an applicable limit (that being 402(g)).

Since you are saying he did not exceed the calendar year limits, you can't recapture that 2021 catch-up since the recharaterization is considered as of the plan year end when you fail the teas making it a 2022 catch-up

That's kind of where I was leaning - there is nothing to 'cause' a catchup (maybe there's an argument for lowering the $21,600 down to $20,500... or $19,500) to use that unused catchup from 2021.  He has been making his deferrals steadily all along (with a larger drop right before 6/30/22).

I found the language in our letter last year saying that this guy had better keep his deferral rate at about 7% if they wanted to pass (and sent early in the plan year); I suspect it wasn't communicated to the HCE.  So if this is what it is, so be it.

Albany, assuming there is a refund, remind the HCE, that getting a refund isn't the worst thing to happen. The worst thing to happen is choosing to defer less and passing the test. Because that means he/she COULD have deferred more. Getting a refund means they deferred the maximum allowed by law.

Always.