>Section 414(v), added by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) provides that for years beginning after December 31, 2001, individuals age 50 or older were allowed to make additional elective deferrals each year, up to a dollar limit, if certain requirements provided under that section are satisfied.

>Those additional elective deferrals have been referred to as “catch up” contributions since they were designed to help older workers catch up for contribution opportunities foregone earlier in their career (notably women, who might have left the workforce for a time).   These extra contributions were not subject to the normal limits and restrictions on qualified plan contributions, so long as they were available to all catch-up eligible individuals who participate under any plan maintained by the employer that provides for elective deferrals.   Employers are not required to offer catch-up contributions to participants.

Background

>Proposed regulations under section 414(v) were published in the Federal Register on October 23, 2001, and public hearings were held in February 2002.   Additionally, Notice 2002-4 provided transitional rules for complying with the universal availability requirement of section 414(v)(4) and the proposed regulations.

>The final regulations, which are largely similar to the earlier proposals, reiterate that while employers are not required to offer the catch-up option, if any plan of an employer provides for catch-up contributions, all plans of the employer that provide for elective deferrals must comply with the universal availability requirement.   Eligible participants are those who are otherwise eligible to make elective deferrals under the plan and would attain age 50 or older before the end of the participant’s taxable year. In the case of a non-calendar year plan, a participant is treated as a catch-up eligible participant beginning on January 1 of the calendar year that includes the participant’s 50th birthday, without regard to the plan year.

Same Basic Structure

The final regulations retain the same basic structure for determining catch-up contributions as provided in the proposed regulations, essentially that elective deferrals made by a catch-up eligible participant are treated as catch-up contributions if they exceed any otherwise applicable limit, to the extent they do not exceed the maximum dollar amount of catch-up contributions permitted under section 414(v).

>The  final regulations also retain the rule that the amount of elective deferrals in excess of an applicable limit is generally determined as of the end of a plan year by comparing the total elective deferrals for the plan year with the applicable limit for the plan year. As under the proposed regulations, the IRS notes that this annual method for determining whether amounts are in excess of an applicable limit also applies to an employer-provided limit that is applied on a payroll-by-payroll basis during the plan year.

>Noting that a number of commentators indicated that some employers would not want to provide matching contributions on catch-up contributions and requested guidance on how they might accomplish that goal in light of an annual determination of whether amounts are in excess of an employer-provided limit, the IRS and Treasury said they believe that employers can achieve their desired goal by specifying which contributions will be matched, rather than specifying which contributions will not be matched.

Universal Availability

>As for satisfying universal availability, the IRS notes that an applicable employer plan is treated as failing to comply with section 401(a)(4) unless the plan allows all catch-up eligible participants to make the same election with respect to additional elective deferrals.   For this purpose, all plans maintained by employers treated as a single employer under section 414(b), (c), (m), or (o) are treated as a single plan, according to the final regulation.   However, a plan will not fail the universal availability requirement solely because an employer-provided limit does not apply to all employees or different employer-limits apply to different groups of employees, as long as each limit satisfies the nondiscriminatory availability requirements of §1.401(a)(4)-4 for benefits, rights, and features.

>The authors of the final regulations note that commentators at an April 30, 2002, hearing on the regulations told IRS the universal availability would be impractical as applied to multiemployer plans because it is difficult to coordinate contributions among collectively bargained and non-collectively bargained employees. Additionally, if a single participating employer did not wish to allow catch-up contributions, then the entire plan could not allow the contributions.   Consequently, the final regulations disregard collectively bargained employees for purposes of determining whether a plan complies with the universal availability rule.

The final regulations are effective on July 8, 2003, and are applicable to contributions in taxable years beginning on or after January 1, 2004, according to the IRS.