Catch-up contributions are counted in determining an employee's ADR. True or False?

The statement regarding catch-up contributions being counted in determining an employee's Actual Deferral Rate (ADR) is false. The ADR is calculated based on elective deferrals, which are the contributions made by the employee to the 401(k) plan from their salary. Catch-up contributions, which are additional contributions allowed for employees aged 50 and over, do not factor into the ADR computation.

The reasoning here is that catch-up contributions are seen as extra contributions available to those nearing retirement age, and they are intended to help boost retirement savings for individuals who may not have contributed sufficiently earlier in their careers. Thus, when assessing an employee's ADR, the focus remains strictly on the mandatory contributions they have made up to the standard contribution limits, without including these additional catch-up amounts.

It's essential for plan administrators to distinguish between these contributions so that calculations and compliance are effectively managed based on regulatory requirements and contribution limits.