There are two HCE's in Plan X Participant A who is 52, and his brother Participant B who is 48.

They both deferred $7,000 into a 401(k) Plan failed the ADP test, and are now getting refunds of $ 600.00.

I reclassified Participant A's refund as "catch-up" for 2003.

My question is - Can I reclassify more of his deferral as catch-up to lower his ADR so Participant B will not get a refund?

Short answer is negative.

Not a chance....

Unless the participant exceeded a statutory or plan imposed limit none of his $ is classified as catch up. Of course, this would have been caught before testing and the $ wouldn't have even been included in the deferrals for testing.

so, am I correct in stating that an HCE who did not defer the maximum under the plan cannot have a portion of his deferral treated as a catch-up contribution to pass the ADP test? The test has to fail and the excess gets treated as a catch up?

You are correct.

makes sense, I suppose.