[14079]
October 23, 2001
TO: PENSION MEMBERS No. 32-01
PENSION OPERATIONS ADVISORY COMMITTEE No. 67-01
RE: IRS ISSUES GUIDANCE ON "CATCH-UP" CONTRIBUTIONS FOR RETIREMENT
PLANS
The Internal Revenue Service has issued proposed regulations on “catch-up”
contributions that may be made to retirement plans by individuals age 50 or over. As you
know, the Institute submitted comments to the Treasury Department with respect to the
development of regulatory guidance under the catch-up provisions of the Economic Growth
and Tax Relief Reconciliation Act of 2001 (EGTRRA).1 The IRS also recently issued
Announcement 2001-93, which provides guidance on the reporting of catch-up contributions on
Form W-2. Both documents are attached for your review.
The proposed regulations address a variety of issues arising from EGTRRA’s portability
provisions, including the following:
• Eligibility requirements to make catch-up contributions. Under the proposed
regulations, a participant who is projected to attain age 50 before the end of a calendar
year is deemed to be age 50 as of January 1 of that year. Thus, all participants who will
attain age 50 during a calendar year are treated the same beginning January 1 of that
year — without regard to whether the participant survives to his or her 50th birthday or
terminates employment during the year.
• Determination of catch-up contribution amounts. Under the proposed regulations,
catch-up contributions would be determined by reference to three types of limits:
statutory limits, employer-provided limits and the actual deferral percentage (ADP)
limit. An employer-provided limit is one that is contained in the terms of the plan (e.g.,
a limit on elective deferrals of highly compensated employees to 10 percent of pay). 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.
1 See Institute Memorandum to Pension Committee No. 58-01 and Pension Operations Advisory Committee No. 50-
01, dated August 15, 2001.
2
• Treatment of catch-up contributions. The proposed regulations address how catch-up
contributions are taken into account for various Code requirements. For instance, for
purposes of ADP testing, any catch-up contribution is disregarded for purposes of
calculating the participant’s actual deferral ratio. Furthermore, catch-up contributions
with respect to the current plan year are not taken into account for purposes of Code
sections 416 or 410(b). However, catch-up contributions made to the plan in prior years
are considered in determining whether a plan is top heavy under section 416 and for
purposes of average benefit percentage testing under section 410(b) to the extent prior
years’ contributions are taken into account.
• Universal availability. A plan that offers catch-up contributions would satisfy the
requirements of section 401(a)(4) only if all catch-up eligible participants are provided
with the effective opportunity to make the same dollar amount of catch-up
contributions. An “effective opportunity” could be provided in several ways. For
example, in plans that limit elective deferrals on a payroll-by-payroll basis, participants
could be offered an opportunity to make catch-up contributions also on such a basis.
• Participants in multiple plans. The proposed regulations provide that for purposes of
determining whether elective deferrals are in excess of a statutory limit, all elective
deferrals in excess of the statutory limit are aggregated in the same manner as the
underlying limit; the aggregate amount of elective deferrals treated as catch-up
contributions because they exceed the statutory limit must not exceed the applicable
dollar catch-up limit. In addition, an eligible participant who participates in plans of
two or more employers may make catch-up contributions once the participant’s elective
deferrals exceed his or her section 402(g) limit, even though the elective deferrals of the
participant do not exceed the applicable limit for either employer’s plan.
The regulations are proposed to apply to contributions in taxable years beginning on or
after January 1, 2002. Taxpayers may rely on the proposed regulations for guidance pending
the issuance of final regulations. To the extent future guidance is more restrictive than the
guidance in the proposed regulations, the future guidance will be applied without retroactive
effect.
Written or electronic comments and requests to speak at a public hearing (scheduled for
February 21, 2002) must be received by January 31, 2002.
Thomas T. Kim
Associate Counsel
Attachments
Note: Not all recipients receive the attachments. To obtain copies of the attachments, please visit our members
website (http://members.ici.org) and search for memo 14079, or call the ICI Library at (202) 326-8304 and request the
attachments for memo 14079.
Attachment no. 1 (in .pdf format)