Section 401(m)

[Guest slt]

I understand that governmental plans can not maintain 401(k) plans unless the plan is a grandfathered 401(k) plan. Does this mean that matches (in any types of governmental plan) are limited to grandfathered 401(k) plans only? It seems like 401(k) and (m) are inseparable.

Can a governmental plan that is not a 401(k) plan (e.g., 457) provide for matches?

Thanks.

[Guest ak]

Yes. I've seen some PLRs involving eligible 457 plans that contained matching contributions (e.g., 100% on first 5% deferred). The issues in the letters had nothing to do with whether a match under the plans was acceptable. If this is a concern, another way to structure the match is to have it made to a qualified DC plan but be based on the deferrals to the 457 plan.

[Guest CVCalhoun]

Although it is possible to have a match inside a 457 plan, we usually recommend having the match made to a separate 401(a) plan. The reason is that the 457(B)(2)(A) limit, currently $8,000, applies to all contributions to a 457 plan, including matching contributions. The 402(g) limit on elective contributions to 401(k) plans, $10,000 for 1999 and scheduled to go up to $10,500 in the year 2000, applies only to elective contributions to a 401(k) plan, not to matching contributions in a 401(a) plan. Thus, having the match contributed to the 457 plan, rather than to a separate 401(a) plan, would seriously diminish the amount which could be contributed.

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Employee benefits legal resource site

[Note: This message has been edited by CVCalhoun]

[Guest ak]

I agree with the comment that the match would be better suited under the qualified plan. But, I thought all amounts under the eligible 457 plan would generally be limited to $8,000. I'm a little confused as to how the $10,000/10, 500 would apply to the 457 plan. I'm aware that deferrals under 402(g) count against the 457 limit. But I don't see how that raises the 457 limit to the 402(g) figure. Am I missing something here or misreading the comment?

[Carol V. Calhoun]

Sorry, my original wording was confusing. I hope that the edits make it clearer.

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Employee benefits legal resource site

[Guest slt]

Thank you for your help everyone. I just have one more related question on this topic. Does the 402(g) limit on elective contributions also only apply to elective contributions to a 403(B) plan (and, therefore, not to matching contributions to a 403(B) plan)?

[Carol V. Calhoun]

slt, the answer to your question is yes. In both 401(a) and 403(B) plans, only elective contributions apply toward the 402(g) limit. You can click here to see other similarities and differences among 401(k), 403(B), and 457 plans.

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Employee benefits legal resource site

[This message has been edited by CVCalhoun (edited 10-28-1999).]