Catch-up limit under s. 402(g)(7)

[Guest MAnglim]

Employees of schools, hospitals, etc., with 15 years of service can contribute up to an extra $3,000 each year (to a max of $15,000) to a 403(B) account. However, this catch-up is not available if the employee's prior elective deferrals exceed $5,000 times years of service. Before EGTRRA, prior elective deferrals included contributions to a 457 plan. S. 457©(2)(B) was repealed effective in 2002.

For 2002 and later, should the computation of prior elective deferrals include 457 contributions made before 2002? Or are they entirely ignored? In some cases, dropping the 457 contributions will make the employee newly eligible for the 402(g)(7) catch-up.

[Guest Yanikoski]

Our company develops software in this market, and our position is that Section 457 plans are simply no longer relevant to 403(B) contribution limit calculations. 457 contributions are not elective deferrals, and should not be counted in the $5000/year restriction. I am not aware of any specific guidance from the IRS on this point, however.

[Ellie Lowder]

Chuck, the Exam. Guidelines do say that examination steps for this increased limit should take into consideration CODAs, 403(B), and 457 plan contributions made in prior years. Remember that those exam guidelines have not recently been updated; however, my guess is that contributions to the 457(B) plan of the same employer would count against the $5k average even though those 457 contributions are not literally "elective deferrals" under 402(g). Providers with which I work do count past 457 contributions for years before 2001 (e.g., the coordinated limit; however, there appears to be uncertainty for years after. My conservative guess is that it is best to continue to count them - I'll ask Bob for his informal view when I next talk to him - or,at our NTSAA conference, yes?

[Guest Yanikoski]

That sounds like good advice, Ellie. Thanks !!

[FJR]

Do the catch-up contributions for those 50 years old under EGTRRA apply to 403b)'s?

[Guest Yanikoski]

Yes, the age 50+ catchup is available in 403(B) plans, and it is in addition to the $3,000 catchup for long-term employees, if a participant is eligible for both (unlike 457 plans, where only one catchup can be used at a time).