Over-age-50 catch-up

[Guest MAnglim]

The elective deferrals described in s. 402(g)have a per-person per-year limit, not a per-plan limit. Thus in 2002, an employee can contribute up to $11,000 to all of the following plans combined: 403(B), 401(k), SEP, and SIMPLE IRA. The same limit applies whether the employee has one or more than one employer. Deferrals to a 457 plan are not included in this definition, so an additional $11,000 could be contributed to that plan.

The over-age-50 catch-up in s. 414(v) is described as an "additional elective deferral." The definition of "elective deferral" provided--in s. 414(u)(2)©--includes 457 plans as well as the others listed above. Is the catch-up limit per-person per-year, or per-plan?

In other words:

1. Employees at my public, state-sponsored university can make voluntary contributions to both a university 403(B) and a state-sponsored 457 plan. Can a participant over age 50 make the full catch-up contribution to each plan, or is she limited to just one catch-up contribution, $1,000 in 2002, to both plans combined?

2. The over-age-50 catch-up is not available in the 457 plan when the employee is using the more generous provisions of s. 457(B)(3). Would it be available in the 403(B) plan during that year?

[MGB]

We are still awaiting guidance from the IRS on your questions. It appears they will make this a per-person limit, but it has not been confirmed.

One thing holding up their deliberations is the possibility of a technical corrections bill. The IRS does not want to go with one interpretation, just to turn around and have Congress change it. They want to make sure they know what will be in the technical corrections bill first.

Up until last week, there was a good chance a technical corrections bill would be introduced before yearend. Now, it is highly unlikely before next year.

[Guest RJT]

The language of 414(v) is pretty clear right now. It is a per plan limit with no aggregation rule. Given the clarity and consistency of the language, it would be more than a technical correction to change this rule, it would be a substantive change (which has happened more than once in technical corrections!).

This also means that taking a 403(B)/ 414(v) will not impact the ability to take a double catchup on the 457. 414(v)(6)© is pretty clear on that as well.

[MGB]

The problem is that the language right now allows an employer to set up a couple of dozen 401(k) plans for the same employees. They could do a full catch-up in each plan (just limit the elective deferral to 0% in all plans except one - everyone is eligible for catch up in all of these other plans). Obviously, this is not what Congress intended.

Three possibilities:

1. A per-person limit (across multiple employers, like 402(g)).

2. A per-type-of-plan limit (allow one catch up limit in each of 401(k), 403(B), etc.).

3. A per-employer limit (like 415).

The IRS has been vacillating between (1) and (3); each has its own problems and technical issues. They definitely are not going to allow the "per plan" language of the law. (Strange how they can get away with that.)