FROM THE OFFICE OF PUBLIC AFFAIRS

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Today, the Treasury Department and the IRS issued final regulations on “catch-up contributions” under section 414(v) and section 402(g).  Employer plans, like 401(k) plans that allow employees to defer wages and contribute them to the plans, can provide participants age 50 and older with the opportunity to make additional elective contributions, called “catch up contributions”. 

The Economic Growth and Tax Relief Reconciliation Act of 2001 gave workers the opportunity to make the increased contributions as they approach retirement age.  For 2003, a catch-up eligible participant could make up to $2,000 in additional elective contributions.  This amount increases by $1,000 each year until it reaches $5,000 in additional elective contributions for 2006. The regulations provide methods for simplifying the process of identifying catch-up contributions at the end of the year.

 “Catch-up contributions offer a chance for employees to increase their savings as they get closer to retirement.  By making the rules as simple as possible, we hope to encourage plan sponsors to offer catch-up contributions to their employees,” said Treasury Assistant Secretary for Tax Policy Pam Olson. 

A plan must allow participants eligible to make catch-up contributions to contribute in excess of any limit that the plan otherwise imposes.  The catch up contributions are not subject to nondiscrimination testing or the generally applicable limits on contributions for a year.  Under the final regulations, employers will not be required to coordinate catch-up contributions for union and non-union employees.  The final regulations are similar to the proposed regulations, and reflect changes to section 414(v) and section 402(g) made by the Job Creation and Worker Assistance Act of 2002. 

Related Documents:

• The text of the final regulations