403(b)(2)

[Guest G. Thornton]

I've heard that the new tax bill has repealed the exclusion allowance limitation of 403(B)(2) but have not been able to confirm it yet. Would appreciate any comments and or references.

[Guest Tom Geer]

What the actual statutory language did was to make the exclusion allowance equal to the 415 maximum (which will be 100% of pay or $40,000). The only exceptions to that are (1) the church plan catchup of $10,000 per year to a maximum of forty, and (2) the new $1000-$5000 "catchup" for participants over 49.

However, the MEA is still a limit on the amount becoming vested. This means that any amounts of non-vested contributions which meet the 415 requirements in the year made may, or may not, meet the MEA limitation when they become vested. If you make more than the $40,000, max the plan out in the year of contribution and have positive earnings, you will fail in the year of vesting (aside from any possible anomalies resulting from adjustments to the dollar limitation). If you max out on 100% of pay, you'd better get a pay increase in the year of vesting.

I think what all this means is that 403(B) plans are now at least understandable. It does not mean that people new to 403(B) plans can run them right.

Tom Geer

tgger@ap-tpa.com

[Michael Devault]

Section 632(a)(2)(B) of the new Act actually struck section 403(B)(2) from the Internal Revenue Code. Therefore, effective January 1, 2002, section 403(B)(2) no longer exists.

But, due to the sunset provisions of the new law, it could re-appear on January 1, 2011. Hopefully, between now and then, Congress will act to make the change (and all others in the new tax law) permanent.

[Guest Tom Geer]

Agreed. 403(B)(2) was repealed. It contained most of the old MEA definitions, and they were replaced with "the applicable limit under section 415" in 403(B)(1). However, 403(B)(1) still applies only when "rights become nonforfeitable" (403(B)(1)) and 403(B)(6) (titled Forfeitable Rights Which Become Nonforfeitable) is still around.