joel Posted October 6, 2007 Author Share Posted October 6, 2007 Regarding the three year catch up for 457:I vaguely remember reading something that the max catch up limit per year permitted is whatever the current years' limit is. For example: A 457 participant wants to take advantage of the 457 catch up in 2007 and was not a plan participant in 2000. What is the maximum catch up permitted? Is it $15,500 or is it what the maximum was in 2000? Thanks. Twice the current year amount. Link to comment Share on other sites More sharing options...
Guest jaspers Posted October 6, 2007 Share Posted October 6, 2007 Joel, If you don't mind where are you getting that info from. Any citations? Thanks again. Link to comment Share on other sites More sharing options...
John Feldt ERPA CPC QPA Posted October 6, 2007 Share Posted October 6, 2007 The special catch-up (last 3 years prior to Normal Retirement Age), is the lesser of two amounts: 1) the current year's "annual deferral" amount, or if less 2) the "underutilized" amount. The underutilized amount is the difference between the prior annual deferral limits and the amount of actual annual deferral made for each of the previous years that the participant was eligible for the plan. This is explained in the Treasury Regulations at §1.457-4(c )(3) Special section 457 catch-up (i) In general. --Except as provided in paragraph (c )(2)(ii) of this section, an eligible plan may provide that, for one or more of the participant's last three taxable years ending before the participant attains normal retirement age, the plan ceiling is an amount not in excess of the lesser of -- (A) Twice the dollar amount in effect under paragraph (c )(1)(i)(A) of this section; or (B) The underutilized limitation determined under paragraph (c )(3)(ii) of this section. (ii) Underutilized limitation. --The underutilized amount determined under this paragraph (c )(3)(ii) is the sum of -- (A) The plan ceiling established under paragraph (c )(1) of this section for the taxable year; plus (B) The plan ceiling established under paragraph (c )(1) of this section (or under section 457(b)(2) for any year before the applicability date of this section) for any prior taxable year or years, less the amount of annual deferrals under the plan for such prior taxable year or years (disregarding any annual deferrals under the plan permitted under the age 50 catch-up under paragraph (c )(2) of this section). (iii) Determining underutilized limitation under paragraph (c )(3)(ii)(B) of this section. --A prior taxable year is taken into account under paragraph (c )(3)(ii)(B) of this section only if it is a year beginning after December 31, 1978, in which the participant was eligible to participate in the plan, and in which compensation deferred (if any) under the plan during the year was subject to a plan ceiling established under paragraph (c )(1) of this section. This paragraph (c )(3)(iii) is subject to the special rules in paragraph (c )(3)(iv) of this section. (iv) Special rules concerning application of the coordination limit for years prior to 2002 for purposes of determining the underutilized limitation... ...(v) Normal retirement age (A) General rule. --For purposes of the special section 457 catch-up in this paragraph (c )(3), a plan must specify the normal retirement age under the plan. A plan may define normal retirement age as any age that is on or after the earlier of age 65 or the age at which participants have the right to retire and receive, under the basic defined benefit pension plan of the State or tax-exempt entity (or a money purchase pension plan in which the participant also participates if the participant is not eligible to participate in a defined benefit plan), immediate retirement benefits without actuarial or similar reduction because of retirement before some later specified age, and that is not later than age 70-1/2. Alternatively, a plan may provide that a participant is allowed to designate a normal retirement age within these ages. For purposes of the special section 457 catch-up in this paragraph (c )(3), an entity sponsoring more than one eligible plan may not permit a participant to have more than one normal retirement age under the eligible plans it sponsors. (B) Special rule for eligible plans of qualified police or firefighters. --An eligible plan with participants that include qualified police or firefighters as defined under section 415(b)(2)(H)(ii)(I) may designate a normal retirement age for such qualified police or firefighters that is earlier than the earliest normal retirement age designated under the general rule of paragraph (c )(3)(i)(A) of this section, but in no event may the normal retirement age be earlier than age 40. Alternatively, a plan may allow a qualified police or firefighter participant to designate a normal retirement age that is between age 40 and age 70-1/2. I hope this helps! Link to comment Share on other sites More sharing options...
Guest jaspers Posted October 6, 2007 Share Posted October 6, 2007 J4FKBC, When would the the "underutilized" amount be less than the current amount? It appears that the current year amount would always be greater than the underutilized amount. Link to comment Share on other sites More sharing options...
John Feldt ERPA CPC QPA Posted October 6, 2007 Share Posted October 6, 2007 Let's go through an example: Bob has been eligible for the 457(b) plan since 2003. Now, in 2007, let's suppose Bob is in the first year of his 3-year period that would end prior to the year he reaches Normal Retirement Age. Starting with his first year, 2003, let's suppose his "annual deferral" amounts were: 2003 10,000 2004 10,000 2005 10,000 2006 12,000 Suppose the maximums for each year were (ignore the 5,000 catchup issue for this example): 2003 12,000 2004 13,000 2005 14,000 2006 15,000 (I did not look those up, it's to late at night, just go with me on this for the illustration) Bob did not use up the whole limit each year, so his underutilized amounts are: 2003 2,000 2004 3,000 2005 4,000 2006 3,000 The total unused amount is the sum of these: $12,000. So, Bob's special catch-up amount for 2007 is the lesser of A) the normal 2007 "annual deferral" limit of $15,500 (or 100% of comp if less) or B) the unused prior amount of $12,000. The lesser amount was $12,000. So, for 2007, Bob's maximum "annual deferral" in the 457(b) plan is $27,500 ($15,500 regular amount, plus $12,000 special catch-up). Remember, "annual deferrals" includes any employee elective deferrals made into the 457(b) plan PLUS any employer contributions allocated to the employee - they all count against the 457(b) limit. Link to comment Share on other sites More sharing options...
Guest jaspers Posted October 6, 2007 Share Posted October 6, 2007 J4FKBC. Thanks for the great example. Now I get it!!! Link to comment Share on other sites More sharing options...
John Feldt ERPA CPC QPA Posted October 7, 2007 Share Posted October 7, 2007 You're welcome - much success to you! Link to comment Share on other sites More sharing options...
Carol V. Calhoun Posted October 18, 2007 Share Posted October 18, 2007 Since my name has been mentioned here, let me just say that my view (like that of all but one other commentator) is that the limit on 457(b) plans is $15,500 (for either 2007 or 2008), assuming no catch-ups. The section 457(b) limit applies to both employer and employee contributions to a 457(b) plan. If you are a governmental employer, and want to have employer matches to a 457(b) plan, you probably want to put them into a qualified (401(a)) plan to avoid this problem. Carol V. Calhoun's annually updated chart says: $45,000 for 2007. Employee benefits legal resource site The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances. Link to comment Share on other sites More sharing options...
gc@chimentowebb.com Posted October 23, 2007 Share Posted October 23, 2007 The section 457(b) limit applies to both employer and employee contributions to a 457(b) plan. If you are a governmental employer, and want to have employer matches to a 457(b) plan, you probably want to put them into a qualified (401(a)) plan to avoid this problem. Because this is a complicated area for people who don't practice in it every day, I am posting a good summary chart from TIAA-CREF. http://www.tiaa-cref.org/administrators/re...ison/index.html The chart is very clear that for a 457(b) non-governmental plan: 1. 415 is not applicable. 2. Total contribution (employer and employee) is limited to $15,500, with a limited catch-up in final 3 years. 3. Employer contributions are not measured for limitation purposes until vested, like the "old" 403(b) exclusion allowance. In other words, investment earnings on non-vested employer contributions will also be considered as employer contributions when they vest, which can be a problem. Here's a link to an old article I wrote which catches some of the basics. http://theworkplace.biz/457_article.html Regards, George Link to comment Share on other sites More sharing options...
John Feldt ERPA CPC QPA Posted October 23, 2007 Share Posted October 23, 2007 Thank you Carol and George! Link to comment Share on other sites More sharing options...
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