The Basic Facts on Catch-Up Contributions

Catch-up contributions are extra payments that people aged 50 or over can make into their retirement plans. Before a participant can make catch-up contributions however, certain limits must be met:

• The annual deferral limit
• The plan’s deferral limit
• Or the annual ADP limit

Studies show that a majority of the present 401k plan options, offer the facility of paying catch-up contributions; the figure is about 93% of plans. Legally however, a plan does not necessarily need to offer catch-up contributions.

If as a provider, you would like to make provisions for catch-up contributions, than probably your plan has to be amended. It is best to confirm with your legal counsel or your record keeper, to ascertain what exactly your particular plan needs.
Catch-up contributions like normal contributions are to be made out of payroll deductions, and as an employer you don’t need to match your employees’ contributions. It would be wise to inform them of your decision, if you’re not going to match.

As regards to paperwork, catch-up contributions are to be shown together with the normal contributions, on the same W2 form. When conducting ADT testing, catch-up contributions are not to be included. Same goes for tests determining the minimum amount of contribution that is needed for a top-heavy plan.

When determining balances available for loans, catch-up contributions should be treated like the normal contributions.

Finally if as an employer, you allow catch-up contributions on one plan, then the same option needs so be offered on all the other plans that permit elective deferrals.

Apart from this you should also consider issues that regard the implementation of catch-up contributions on your system.


Reference: http://www.401khelpcenter.com/catch-up_contributions.html