Section 457(b) special catch up contributions

[KimberlyC]

I have a client who has a nongovernmental Section 457(b) plan. Under the special "last 3-year catch-up" contribution rule for Section 457(b) plans, a particpant in the last three years before the plan's normal retirement age (age 65), the annual deferral amount is increased to the lesser of (i) twice the annual 457(b) limit ($18,000 for 2016 or $36,000) or (ii) the annual limit ($18,00 for 2016) plus amounts allowed in prior years that weren't utilized.

My cllient would like to add the special catch up rule, but is concenred that it can't accurately recordkeep deferral amounts over participants' careers.

The catch-up rule is permissive; an employer doesn't have to add it to a plan. Is it possible to include a lesser catch up rule? For example, allow particpants to make up amounts that were not utilized only in the 5, 7, or 10-year period prior to normal retirement age (instead of their entire careers).

One part of me feels that since it is permissive, you should be able to do something less than the maximum permitted by law. The other part feels that the IRS may not be flexible -- you other adopt the rule as is or not at all.

Any thoughts are welcome

[Carol V. Calhoun]

I can't see why a lesser limit would be a problem. A 457(b) plan is not subject to any kind of discrimination rule, so you don't have to worry about that part. And 457(b) merely states that deferrals in excess of the limits are not allowed; it doesn't require you to permit deferrals up to the limit.

[KimberlyC]

Thank you! That is where I come out logically. However, I haven't ever seen a plan with a modified catch up rule and I couldn't find any guidance (even unofficial) on point.