403(b) Deferral Limits

[Guest Melissa Winslow]

I have a 403(B) plan (drafted in 1989) that set the deferral limit at 16% of compensation. Is there a reason to retain a deferral percentage limit in this type of plan?

[Michael Devault]

There's no reason to keep the deferral percentage at 16%. That was set back in the days of the Exclusion Allowance and when elective deferrals were not considered part of includible compensation.

EGTRRA changed things by eliminating the Exclusion Allowance calculation, adding catch-up provisions for participants over age 50 and increasing the 415 limit. If the plan isn't changed to reflect the new law, the only thing that is accomplished is placing an unneeded (and perhaps unwanted) restriction on the ability of employees to contribute.

Hope this is of some benefit to you.