Normally if a client doesn't get their failed ADP refunds done withing 12 months after the close of the plan year we calculate the corrective QNEC for them using either a bottom up formula, straight percent formula, flat dollar formula or using the one to one correction method. For the 2002 plan year, what effect, if any, would recharacterizing part of the refunds as catch up have on the end result of the QNEC?

For example, 2002 ADP test was just completed and refunds needed to be done by 12/31/2003. It is determined that some of the HC's refunds would have been recharacterized as age 50 catch up had the refunds been done timely.

Thanks!

My recollection is that the elective deferrals that would otherwise be refunded for a catch up eligible HCE must be treated as catch up contribuitons as of the applicable year end. This should reduce the amount of QNECs.

However, I think the Plan has the option to make timely QNECs and eliminate the catch up contribution on the basis that once the QNECs are made the plan passes ADP and there are no refunds to be made.