457(b) catch-ups

[jpod]

Governmental employer has agreed to make the maximum annual contribution permitted for a senior manager to a 457(b) Plan, i.e., a non-elective contribution. Does the extra $6,000 catch-up have to be elective, or can it be non-elective?

[Belgarath]

Just at a very quick look without any analysis/cross checking, it seems like 1.414(v)-1(g)(2) defines an "elective deferral" as including "any" contribution to a section 457 eligible governmental plan.

[jpod]

That's exactly what I am thinking. It never occurred to me that it could be non-elective, and I don't recall ever hearing anything about it, but I found that little nugget too. I am just wondering if it is as simple as that and if anyone with experience with non-elective 457(b) governmental plans can confirm this.

[Peter Gulia]

jpod, depending on what your client has asked of you and other circumstances, you might consider whether an agreed-to contribution is within or beyond the employer's powers.

Under some States' laws (and sometimes depending on exactly which kind or class of State or local government entity the employer is), a governmental employer might lack power to provide a nonelective contribution.

I have seen an employer, after a financial-statements auditor detected the employer's payment of agreed-upon but unauthorized contributions, take back the improperly paid amounts with interest or investment value.

[Carol V. Calhoun]

One of the interesting things about 457 is that the "elective deferral" limits apply regardless of whether the contribution is in fact elective. Even leaving aside the catch-up, the 402(g) limits apply only to elective deferrals in 401(k) or 403(b) plans, but to all contributions to 457(b) plans. In most instances, this is a down side to 457 plans. (For example, an employer match gets counted against the limit.) But it does suggest that the catch-up can be used even for nonelective contributions--assuming, as Peter says, that you have checked state law and it does not create a problem.