402(g) limits - 401(k) and 403(b)

[Guest Melissa M.]

Are 401(k) deferrals and 403(b) contributions combined for 402(g) purposes? I have an employee who participated in a 403(b) plan with another employer before coming on board with my company in July 2008. Employee wants to participate in our 401(k) but I don't know if I need to limit deferrals into 401(k) for 2008 for 402(g) purposes, based upon what employee contributed to 403(b) already for 2008.

How are catch-up contributions affected?

Thanks!

[masteff]

Yes, elective deferrals to 403(b)'s and 401(k)'s are combined for purposes of 402(g).

As for catch-up (I assume you mean the age-50 catch-up), apply it at the plan level based only on deferrals w/in that plan; do not base recordkeeping on deferrals to an outside plan.

Example: Limits are $15,500 and $5,000 for total of $20,500. Suppose EE defers $10,000 in Plan A. This is below the $15,500 limit so Plan A records it all as regular deferrals. EE then defers $9,000 in Plan B. Again, this is below the $15,500 limit so Plan B records it all as regular deferrals. So neither plan records any catch-up contributions for the year, despite the fact that with a total deferral of $19,000 then $3,500 count as catch-up for the EE individually.

[Guest mjb]

Are 401(k) deferrals and 403(b) contributions combined for 402(g) purposes? I have an employee who participated in a 403(b) plan with another employer before coming on board with my company in July 2008. Employee wants to participate in our 401(k) but I don't know if I need to limit deferrals into 401(k) for 2008 for 402(g) purposes, based upon what employee contributed to 403(b) already for 2008.

How are catch-up contributions affected?

Thanks!

Employers have no responsibility to regulate or limit contributions so as prevent the employee from exceeding the 402g limit including the catch up, where an employee has made elective contributions to another 401k or 403b plan that is not a member of the same controlled group. If the total amount of the deferrals to both plans exceeds the 402g limit as reported on the employee's w-2, the employee has the responsibility to request that the excess be removed by April 15th from one of the plans.

[masteff]

Employers have no responsibility to regulate or limit contributions so as prevent the employee from exceeding the 402g limit including the catch up, where an employee has made elective contributions to another 401k or 403b plan that is not a member of the same controlled group. If the total amount of the deferrals to both plans exceeds the 402g limit as reported on the employee's w-2, the employee has the responsibility to request that the excess be removed by April 15th from one of the plans.

You are absolutely correct, but from an administrative point of view, an ounce of prevention is worth a pound of cure.

[Guest mjb]

Employers have no responsibility to regulate or limit contributions so as prevent the employee from exceeding the 402g limit including the catch up, where an employee has made elective contributions to another 401k or 403b plan that is not a member of the same controlled group. If the total amount of the deferrals to both plans exceeds the 402g limit as reported on the employee's w-2, the employee has the responsibility to request that the excess be removed by April 15th from one of the plans.

You are absolutely correct, but from an administrative point of view, an ounce of prevention is worth a pound of cure.

If there is no employer liability, what is prevented?

[masteff]

If there is no employer liability, what is prevented?

Extra work and hassle. It takes time and paperwork to process those corrective distributions. But it takes less than 1 minute to key a number into my payroll system to cap contributions at some amount below the standard limit.

[Guest mjb]

If there is no employer liability, what is prevented?

Extra work and hassle. It takes time and paperwork to process those corrective distributions. But it takes less than 1 minute to key a number into my payroll system to cap contributions at some amount below the standard limit.

How do you know the # is correct? What if the employee gets a refund of an excess contribution from the other plan after year end?

[masteff]

How do you know the # is correct? What if the employee gets a refund of an excess contribution from the other plan after year end?

Valid points.

We only input an override limit if the employee specifically comes to us about it (our enrollment info mentions it and then the burden is on them to take action). We certainly would never set an override w/out the employee explicitly requesting it. It's the responsiblity of the employee to document how much they contributed at the prior employer. As for employees fixing it under the other plan, I suppose they'd simply never come to us, so we'd never do anything to override their standard limit.

[Jim Chad]

FWIW I think so.

[Kevin C]

Must the employer assure that the 402(g) limits stand as fulfilled when one adds all deferrals from all plans encompassed in the same controlled group?

Yes.

401(a)(30)Limitations on elective deferrals.—In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year.