Special 457b Catchup Provisions

[Guest buffcody]

My wife would like to maximize contributions to her 457b over the next three years beyond the $20,500 allowed to someone over 50. We have inquired into the regulations that govern being able to contribute up to $30,000. The plan document seems to put the normal retirement age at 55 (though, in reality, no one or hardly anyone ever retires at that age and pensions are not available until one is 60). The question is whether this mention in the plan document means that one could only take advantage of the special catchup contributions, therefore, at age 52-54. The plan administrator does not seem to be too savvy about this matter nor does the rep from the investment firm who gets all the 457b business. Their bottom-line answer is that she is past the time when she could have done this? Is this the meaning of NRA in this context? Or does it means something else?

Frank

[QDROphile]

Whether or not the plan representatives or advisors are savvy, they have to give an answer to the proposal to increase deferrals. Get the answer, then consider a challenge if you don't like the answer. Meanwhile, see section 457(b) (3) and be prepared for disappointment.

[joel]

My wife would like to maximize contributions to her 457b over the next three years beyond the $20,500 allowed to someone over 50. We have inquired into the regulations that govern being able to contribute up to $30,000. The plan document seems to put the normal retirement age at 55 (though, in reality, no one or hardly anyone ever retires at that age and pensions are not available until one is 60). The question is whether this mention in the plan document means that one could only take advantage of the special catchup contributions, therefore, at age 52-54. The plan administrator does not seem to be too savvy about this matter nor does the rep from the investment firm who gets all the 457b business. Their bottom-line answer is that she is past the time when she could have done this? Is this the meaning of NRA in this context? Or does it means something else?

Frank

Hi Buff: The Normal Retirement Age is any age DESIGNATED BY YOUR WIFE in the range of years beginning with the earliest age at which she may retire with full pension benefits up until age 70-1/2. The "normal retirement age" for the pension plan is not the NRA for the 457(b) plan. So the earliest your wife can embark on her DAR contributions is like you said age 52. You do not count age 55. The latest she can start the process is age 67. You do not count the year she turns age 70-1/2.

I trust this helps. Please let me know how you make out.

Joel

[QDROphile]

Joel:

Please reconcile your statements with Treasury Regulation section 1.457-4( c)(v).

[TLGeer]

Latest NRA is 70.

Earliest NRA is lesser of 65 or "the age at which participants have the right to retire and receive, under the basic defined benefit pension plan of the State or tax-exempt entity (or a money purchase pension plan in which the participant also participates if the participant is not eligible to participate in a defined benefit plan)"

The plan can pick an age in that range, or allow the participant to select the age.

If the participant is in another 457 of the same employer, and it fixes an age, this plan ought to say that the NRA is determined under the first plan the participant was in.

Unless your wife is a qualified police or firefighter.

If the plan uses age 55, and "the basic defined benefit pension plan of the State or tax-exempt entity (or a money purchase pension plan in which the participant also participates if the participant is not eligible to participate in a defined benefit plan)" has a later age, the NRA ought to be the later age.

Of course, the 457 catch-up is a real catch-up, so there has to be underutilization in prior years. If there was not, the NRA discussion is moot.

Is the plan sponsot governmental? That affects what kind of pressure you can bring to bear.

Tom Geer