403(b) catch-ups/EGTRRA

[Guest gmann]

As a result of EGTRRA, it appears we now have the ironic situation where 403(B) participants who have been contributing under the "catch-up" rules (the additional $3,000, for a max of $13,500 in 2001), will be restricted to $12,000 next year ($11,000 402(g) limit plus the $1,000 new catch-up for those age 50 or more). In short, these people will worst off. I could not find anything in the Committee Reports or the Act which "grandfathered" those doing the extra $3,000 catch-ups, so I am assuming next year they will be subject to a lower contribution limit.

Is anyone aware of any relief provisions for 403(B) participants in this boat?

[Guest Harvey Carruth]

No relief provisions are needed. IRC Section 402(g)(8) was renumbered as 402(g)(7) by EGTRRA and remains applicable [see EGTRRA Section 611(d)(3)]. Hence, during 2002 the maximum elective deferral to a 403(B) plan is $15,000 for a participant whose 50th birthday preceeds 01-01-2003 and who is eligible for an additional $3,000 under IRC Section 402(g)(7).

[Guest gmann]

Thank you. I am happy to see that.

[LIBERTYKID]

I have a client that said that ADP is taking the position that the limit is $11,000 plus $3,000 and you can't have both the $3,000 and the $1,000 catch-up at the same time. So the limit is $14,000 and not $15,000. The law is not unclear to me and I believe that $15,000 is the correct answer, but if someone can explain how the statute can be interpreted to limit someone to $14,000, please let me know.

[Ellie Lowder]

ADP is not correct. I'm not sure why they take this position, but there is no coordination between the 414(v) catch up and the IRC 402(g)(7) increased limit for certain employees w/15 or more years of service. You can use both.

[mbozek]

There was some IRS uncertainty last year about the 402(g)(7) catch up being added to the 414(v) catch up but I think every one has come into agreement about a $15,000 max deferral under 403(B) salary reduction. The interesting planning issue to combine a 457 plan with a 403(B) plan to permit a total salary deferral of 26K (with a possible additonal 11K catch up under the 457 rules as has been reported in another post for a max deferral of 37k). Because there is no ADP testing under either plan an employee can plan on the max deferral each year.