Calculation of Annual Deferral Limit/Ceiling for Non-Profit 457(b)

[Lori Foresz]

Hi,.

We have a plan that has 6-year graded vesting on employer contributions/deferrals to the 47(b) NP plan.

Participants also make deferrals from pay.

It is our understanding (PLEASE correct me if I am wrong) that only the current year VESTED employer contribution (plus vesting increase from prior years' ER contributions) count towards the annual ceiling.

So, someone who receives a 17,500 ER contributiion but is ZERO percent vested could contribute 17,500 deferrals from 2013 pay.

We understand that due to the complexity of the annual ceiling calculation, some TPAS might be considering the entire contribution VESTED and apply it all towards the ceiling in the current year only.

So, tracking of the annual ceiling is simplified.

Any thoughts are appreciated.

GG

[John Feldt ERPA CPC QPA]

1. It is our understanding (PLEASE correct me if I am wrong) that only the current year VESTED employer contribution (plus vesting increase from prior years' ER contributions) count towards the annual ceiling.

2. So, someone who receives a 17,500 ER contributiion but is ZERO percent vested could contribute 17,500 deferrals from 2013 pay.

3. We understand that due to the complexity of the annual ceiling calculation, some TPAS might be considering the entire contribution VESTED and apply it all towards the ceiling in the current year only.

So, tracking of the annual ceiling is simplified.

1. You are correct, only the balances vesting for the year count plus the vested contributions for the year count against the annual 457(b) deferral limit. Employee deferrals, vested employer contributions, and any prior non-vested balances that now become vested during the year - all of these add together and count against the annual 457(b) deferral limit ($17,500 ignoring any last-3 years catchups). Actually, i am not sure that the nonvested amounts are even considered as 457(b) amounts.

2. Correct, but you could easily exceed the limit in a future year when the nonvested amounts begin to vest and thus count against the 457(b) deferral limit in such future year. Suppose the in 2014 a nonvested employer contribution of $17,500 increases by 6% (earnings of $1,050) so it is now valued at $18,550 in 2015. Suppose the plan has 100% vesting upon death. The participant dies in 2015 and the $18,550 becomes vested, which will likely exceed the annual deferral limit for 2015.

3. 457(b) plans require a written plan document. The plan document dictates whether or not a vesting schedule applies. Many times the 457(b) deferral, whether made by the employer or by the employee, is considered by the employee as their wages that they could have been paid, but they put it in the plan. A vesting schedule on that amount usually does not sit well with them. Remember, the people actually eligible for a nonprofit corporation's 457(b) plan are not the rank and file employees (must generally be a top hat group).

[Lori Foresz]

Thanks John. Your reply was very helpful and I just wanted to thank you for taking the time to help.