403b and 457 offsets

[Guest Brian Cox]

Under EGTRRA, beginning 2002, contributions to a 403(B) do not count against 457(B) contributions. Does that mean a public school employee could contribute $11,000 to a 403(B) AND $11,000 to a 457(B)...for a total of $22,000 for the year?

[MGB]

Yes.

[jlf]

Was this specifically intended by the lawmakers? Or is it a technical unintened result of the legislation? It surely is unfair to the employees/employers who are not eligible for 457/403b.............the entire for-profit segment of our economy.

Best wishes,

Joel L. Frank:(

[MGB]

This was completely intended...very specific, not a glitch

As far as fairness...whoever has the loudest squeaky wheel gets the grease. Senators and Representatives listen to their constituents in governments back home more than anyone else. They wanted it...they got it.

[Guest Tom Geer]

Yep. After 2001, 457 deferrals have no effect whatsoever on other plans. They can be added back into comp, they are not deferrals under 402(g) and so don't count against the deferral cap, they are not subject to the 415 limitations of $40,000/25%, they aren't subject to any nondiscrimination standards, etc. Pretty good, eh?

[Guest Harvey Carruth]

I am confident that Tom Geer's reference to the 415 limitations of $40,000/25% was an oversight, and that he really meant $40,000/100%.

[Guest Tom Geer]

Oops. Old habits die hard.

[jlf]

Does anyone know of a provider that is actively marketing this opportunity? Can it be effectuated through a single provider?

Best wishes,

Joel L. Frank

[MGB]

Actually, for some people (within 3 yrs of NRA) it is a $34,000 opportunity, not just $22,000. And, for others (age 50 or over), it is a $24,000 (or more) opportunity, not just $22,000. And it will rise fast over the next few years, because each individual piece will increase $1,000 per year.

In the three years prior to retirement, the 457 limit is double the otherwise applicable limit (previously this was $15,000). So, you can do $22,000 without worrying about coordinating the $11,000 in another plan.

The law says you cannot have a catch-up contribution (for those 50 and over) in the 457 in the same year as the double-limit. However, it appears you CAN have it in another plan in the same year. So, there is an additional $1,000 that can go to another plan. Once we get to 2006, this will be $15,000 in 401(k) or 403(B), plus $5,000 catch-up, plus $30,000 in 457 for someone within 3 years of NRA.

Note that the catch-up can be in any plan. The law does not restrict the number of catch-ups you can have (although regs. probably will, or a technical correction). So, for those that are not within 3 yrs of NRA, they can have (in 2002), $11,000+$1,000 in 457, $11,000 in 403(B) or 401(k) plus $1,000 (or $1,000 in each if the plan sponsor has both).

[Guest Tom Geer]

Yes, this was intentional. The legislators and staffers in Congress see the nonprofit community as brethren who would never try to manipulate the rules. And, generally, that's true.

We do 457 and 403(B) admin work. We are not investment providers, as a philosophical matter, so I guess in that sense we aren't single-stop. We are actually spending a fair amount of time with our current clients explaining the implications for them of these changes and already have spreadsheets set up to do design analysis.

[jlf]

Hopefully the eligible employers will see that offering employees an opportunity to max out on a 403b as well as a 457 can alleviate the nationwide shortage of teachers and nurses.

Think of the post age 55 crowd that have never put any meaningful amount into either plan. NOW THIS IS A REAL WAY TO "CATCH-UP"!!! Even though they are eligible to retire they may very well put the date off for a couple of years.

Best wishes,

Joel L. Frank

[Guest GAT]

What impact, if any, is there on 401k plans?

In North Carolina, there is a state sponsored 401k plan for state employees, a 457 plan, and 403b plans. Under the new tax law, could a state employee put $11,000 in each plan, for a total of $33,000?

[Guest Tom Geer]

Nope. The 2001+ 401(k) and 403(B) amounts together are subject to the $11,000, which is a personal, per-year limit

[jlf]

Tom...so even though the law allows the states to offer 401(k), and 457 to employees, the $22,000 combined maximum can only be accomplished by those employees that qualify for a 403b and 457. Am I correct?

Best wishes,

Joel L. Frank

[Guest Tom Geer]

Or a 401(k) and a 457. Just not a 401(k) and a 403(B).

[Ellie Lowder]

I have just learned that there is a possibility that we will see Technical Corrections on this (among other Corrections to the bill)in August. In other words, I have been told that the repeal of the coordination requirements was not intended to permit "double dipping". This is the first I had heard of that possibility. Anyone else out there with your ear to the ground?

[jlf]

Boy oh Boy!.......There are going to be a lot of bewildered and perplexed people out there!

This should not be considered double dipping because it is all elective deferrals..........the troops should be battle ready!

[jlf]

Additionally,

I thought we as a nation save very little and the govt wants us to save more.................this is some mixed message, Washington, DC. crowd!!

Best,

Joel L. Frank

[jlf]

Employee Benefits Newsletter for July, 2001, published by the Boardman Law Firm states:

"Comments" (P. 3, top right):

"Repeal of the coordination between the 401(k) and 457 amounts gives 457 eligible employers more design options. (Note however that the annual limit on deferrals remains and provides an overall cap on deferrals.)"

Their position seems to be straight forward. May I suggest that one of the attorneys that have contributed to this thread give them a call to determine where in the legislation is the overall cap addressed.

Best wishes,

Joel L. Frank

[Guest Tom Geer]

I spoke to them recently about other issues, and they were not able to discuss technical corrections. Maybe somebody else will have better luck.

By the way, they will talk to non-attornies.

[jlf]

Tom...........I sent them the entire thread and asked them to participate.

Best,

Joel L. Frank

[jlf]

Dear all,

An attorney has just emailed me with the following information:

The attorney was informed, today, by an attorney on the Staff of the Committee on Ways and Means that the Committee has no plans to make any changes in the "$22,000" maximum elective deferral.

Best wishes,

Joel L. Frank

[Guest mike webb]

Earlier in this thread, MGB indicated that the age-50 catch-up election could be utlized in 401(k), 403(B), and 457(B) plans. Indeed, I have seen much published guidence that concurs with MGB.

However, Section 631 of EGTRRA (the section that governs this rule) amends Section 414 so that the age-50 catch-up can be used in all qualified and 403(B) plans, but only in "an eligible deferred compensation plan under 457 of AN ELIGIBLE EMPLOYER DESCRIBED IN SECTION 457(e)(1)(A) (my emphasis)" (IRC 414(v)(6)(a)(iii), as added by EGTRRA). 457(e)(1)(A) indicates that the employer must be "a State, political subdivision of a State, and any agency or instrumentality of a State or political subdivision of a State".

Thus, for non governmental tax-exempts that are eligible to sponsor 401(k), 403(B), and 457(B) plans, isn't it true that an eligible employee would not have a choice as to where the age-50 catch-up deferral would be made (i.e., it MUST be made into the 403(B) or 401(k) plan, NOT the 457(B) plan?). Or am I missing something?

[MGB]

I concur that references to 457 and catch up should only be in the context of governmental plans. This is true with most of the 457 plan changes in the law.

The issue that makes the distinction is funding. A 457 plan of a governmental employer must be funded in a trust. A 457 plan of a tax-exempt employer is an unfunded arrangement.

Catch up contributions should only be made to funded plans. This is also why many other provisions only apply to the funded types of 457 plans, also.

[Guest jstoffel]

I have also heard from good source that the 403(B) "catch-up" provisions in section 402(g) were not repealed. Therefore, in 2002, the max to a 403(B) is $11,000, plus $1,000 if over age 50, plus $3,000 if at least 15 years of service for a total of $15,000.

Any thoughts??? I am skeptical of the 402(g) provision. It seems to me that $12,000 is the ultimate limit.