FAQ 371: ADP--Catchup less than the maximum allowed of $4,000

Problem: How does the system calculate the catch-up contribution on the ADP test? The plan failed the ADP test and there is only one HCE who is catch-up eligible. The system only reclassified $2,059 as catch-up for this person instead of the full amount allowed by law of $6,000. The plan still fails the ADP test and either other HCEs will have to have monies returned or a QNEC contribution will have to be made.

Solution: Catchup is allowed under the regs for ADP failures based *only* on the amount that the HCE would have received as a return. So, in this case, this person must have been going to get an HCE return of $2059. The law does not allow the full $6,000 catchup to be used for the HCE, even though it would help the results of the test in general.