Catch-Up

[PJ2009]

It is my understanding that EGTRRA removed the restriction on making elective deferrals under both 403(b) and 457(b) plans. In other words, an employee participating in both types of plans can defer $16,500 under each plan in 2010, for a total of $33,000 in elective deferrals. If the employee has reached age 50, can he also make a catch-up under each plan ($5,500 +5,500 = 11,000)? I have read various restrictions, such as the requirement that the employee must be within 3 years of retirement and that the 457(b) catch-up can only be made if the plan is a governmental plan. Also, there is mention of a "special" catch-up. Is that in addition to the "regular" catch-up of $5,500?

As you can tell, 457 is new to me. Thanks much.

[PJ2009]

It is my understanding that EGTRRA removed the restriction on making elective deferrals under both 403(b) and 457(b) plans. In other words, an employee participating in both types of plans can defer $16,500 under each plan in 2010, for a total of $33,000 in elective deferrals. If the employee has reached age 50, can he also make a catch-up under each plan ($5,500 +5,500 = 11,000)? I have read various restrictions, such as the requirement that the employee must be within 3 years of retirement and that the 457(b) catch-up can only be made if the plan is a governmental plan. Also, there is mention of a "special" catch-up. Is that in addition to the "regular" catch-up of $5,500?

As you can tell, 457 is new to me. Thanks much.

I believe I have found the answer. According to 414(v)(6)(iii), an "applicable employer plan" means an eligible deferred compensation plan under section 457 of an eligible employer described in section 457(e)(1)(A)." Section 457(e)(1)(A) defines an "eligible employer" as "a State, political subdivision of a State, and any agency or instrumentality of a State of political subdivision of a State..."

I'm not sure why such a distinction was made, but it appears that participants in "non-governmental" 457 plans are not eligible for catch-up contributions. However, they are eligible for the $16,500 in deferrals, even if they defer a separate $16,500 under a 403(b), correct?

Am I missing anything here? Calling all 457 experts! Thanks again.

[Guest LeeNunn]

The rules for 457(b) plans for governmental plans differ from the 457(b) rules for nongovernmental plans. For example,

457(b) rules for governmental plans include:

Open to all employees, not just executives

Funding is required under IRC Section 457(g)

Age 50 catch-up ($5,500 for 2009)

Higher of age 50 catch-up or regular catch-up in three years before NRA

Loans are available

Rollovers to/from other governmental 457(b) plans and qualified plans

457(b) rules for nongovernmental plans include:

Eligibility limited to “Top-Hat” employees

Participants are unsecured general creditors

In-service distributions (fixed or determinable) are available

Second, one-time election to redefer

Rabbi trust OK

No loans

Rollovers to/from only nongovernmental 457(b) plans

[PJ2009]

The rules for 457(b) plans for governmental plans differ from the 457(b) rules for nongovernmental plans. For example,

457(b) rules for governmental plans include:

Open to all employees, not just executives

Funding is required under IRC Section 457(g)

Age 50 catch-up ($5,500 for 2009)

Higher of age 50 catch-up or regular catch-up in three years before NRA

Loans are available

Rollovers to/from other governmental 457(b) plans and qualified plans

457(b) rules for nongovernmental plans include:

Eligibility limited to “Top-Hat” employees

Participants are unsecured general creditors

In-service distributions (fixed or determinable) are available

Second, one-time election to redefer

Rabbi trust OK

No loans

Rollovers to/from only nongovernmental 457(b) plans