First year of the plan with HCEs limited due to lack of SH

As not being a 401k person, have a question for the gurus out there.

First year of the plan. HCE's will be limited to 5% and prior year testing.

HCE salary is 100k so max 5% is 5k

HCE is over 50, can they do additional 7.5k of catch-up and still pass ADP?

Thanks

You would still have the run the 401(k) test and see how much of a refund would be due - if it's 7500 or less, then you could do it that way where the "refund" instead gets recharacterized.

An issue could arise if you have multiple HCEs at varying rates/amounts, because of the way the refunds are determined - they come down to a level dollar amount for all HCEs before considering whether anything could then be converted to catchups.

In other words, if he's the only HCE, then 12,500 would work.  If he's one of many, then it's not as clear-cut because it's dependent on the other HCEs.  If there's another HCE at 200,000 doing something similar then the math does not come out the way you'd want.

thank you for this not clear on the testing part - multiple HCE issue is another story but I am trying to understand for 1 HCE

Say 1 HCE and 1 NHCE

HCE will do 5% plus 7.5k

NHCE will do nothing.

My understanding 5k deferral is fine and recharacterize 7.5k as catch up, correct?

Yes, that's absolutely fine.  HCE can fail the test by 7500 and that's what you're planning to recharacterize, so good to go.

Fantastic and thank you