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Application of 401(a)(17) limit to 403(b) elective deferrals?

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A back to basics question: Does the 401(a)(17) compensation limit apply to elective deferrals under a 403(b) plan? For example, if an employee's compensation is $350k and he has elected to defer 5% of compensation, can he defer 5% of $350k up to the 402(g) limit ($18k), or can he only defer 5% of $265k ($13,250) because of 401(a)(17)?

I assumed 401(a)(17) did apply to 403(b) plan deferrals, but I've been pointed to some regulations under 1.403(b)-5 that suggest universal availability trumps such that 401(a)(17) does not apply. Thanks in advance for any thoughts.

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Whether a $350k or $265k limit applies in the case of elective deferrals is really a moot point. The individual with compensation of $350k could defer the maximum ($18,000) even if only compensation below the 401(a)(17) limit were considered, so it really doesn't matter whether you treat his compensation as $350k or $265k.

For example, suppose that the person elects to have 5% of $350k deferred. At the end of the year, he will have deferred $17,500, which is less than the lesser of a) 100% of compensation (even counting only 401(a)(17) compensation), or b) $18,000, so he's still within the limit. All he's done by stating the deferrals as 5% of compensation is a timing issue--having the deferrals taken out ratably throughout the year rather than front-loading them so he will max out as early in the year as possible.

I suppose the result could be different if the plan actually limited elective deferrals to 5% of compensation for all employees. However, I have never seen a plan that limited elective deferrals to a greater extent than the statute provides. If nothing else, a limitation on the amount of elective deferrals might give rise to issues concerning whether the universal availability test was met (an issue on which I express no opinion).

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