Maximum deferral limitation

[jkharvey]

This is the only 457 plan we administer so I have limited experience w/ them. I need to make certain we are handling the maximum deferral limitation correctly (outside of any catchup provisions). The plan has a 6 year graded vesting schedule. If an employee is already at 100% vesting, is it correct to say that the total "deferral" amount subject to the limitation is the employee's deferral amount and the ER nonelective contribution. There would be no adjustment for gain/loss. Is this correct?

Example: 12/31/2006 PYE EE defers 12,000 ER match contribution of 4,000. Gains during 2006 are 2500

The total for limitation purposes is 16,000

since the limit for 2006 is 15,000, excess is 1,000.

Thank you.

[John Feldt ERPA CPC QPA]

You are referring to a 457(b) plan. As mjb pointed out at the end of the thread link below, a deferral is not counted for the $15,500 limit under a 457(b) plan until it is vested.

http://benefitslink.com/boards/index.php?s...&hl=vesting

So, the amounts that are not vested do not technically count against the limit until they become vested. If that "nonvested" amount has grown with earnings, and those earnings also become vested at the same time the deferral does, then those earnings also count against the limit at the time they too become vested.

So, if an employee was already 100% vested at the beginning of the calendar year, then the total "deferral" amount subject to the limitation is the employee's deferral amount and all employer contributions (the "annual deferral"). The gains and losses no longer are not counted toward the limit. If the employee was only 80% vested, then the gains and losses on the nonvested portion would count against the limit at the time they became vested.

So, in your example for 2006, if:

1. Employee elective = 12,000

2. ER contribution = 4,000.

3. the account was fully vested on 12-31-2005

4. Gains during 2006 are 2500

You are correct that the total is $16,000 and the excess is $1,000 (unless catch-up can be utilized).

The refund deadline for that excess would depend on whether the employer is a government employer or a tax-exempt entity. "As soon as administratively practicable" for the government, or April 15th for the tax-exempt entity.