415 limit in a church plan - special election

[401(k)athryn]

415(c)(7) says that an employer can make a contribution above the 415 limit (100% of pay or $57,000) as long as it does not exceed $10,000 more than said limit.  This special election can be made each year, but the total overall amount used under 415(c)(7) cannot exceed $40,000.

Questions:

1) This is not written into the church plan document that we use and the document provider indicates that it is simply an employer election. It seems to me as though it should be referenced in the document.  Do you all agree that it is simply an administrative election to exceed the document specified 415 election for a given year?

2) Is the $40,000 cap on this limit based upon the participant's entire time working in the religious order, as opposed to just with the church sponsoring the plan?  Seems very difficult (impossible) to track if it is a limit applying to all years in the religious order.

Thanks!

[401(k)athryn]

Anyone familiar with this election?

[401(k)athryn]

Any church plan experts out there who can help?

[Peter Gulia]

It is not “$10,000 more than” the otherwise provided IRC § 415(c) limit; it is up to $10,000, even if that is more than 100% of the participant’s compensation.

 

The IRC § 415(c)(7)(A) election is the participant’s election.

 

(The document provider’s mention of “an employer election” perhaps describes something about how a user specifies a choice in, or interprets the effect of, the user’s document.)

 

The $40,000 all-years limit is a limit on the portions of annual additions that, but for using IRC § 415(c)(7)(A), would have exceeded a year’s IRC § 415(c) limit.

 

In my experience, many church paymasters administer IRC § 415(c)(7)(A) by relying on the participant’s written or implied statement, unless the employer knows (looking only to the employer’s records) that the participant’s statement is false.

 

Consider also that a participant’s § 415(c) excess might affect the individual’s Federal income tax treatment, including the tax treatment of her contracts and accounts she otherwise intended as § 403(b) contracts and accounts, without affecting the tax treatment of other participants.

 

About what to state in a plan’s governing document, I have never attempted to use any IRS-preapproved document to state a § 415(c) limit that could be affected by § 415(c)(7)(A).

 

Sources:

 

Internal Revenue Code of 1986 (26 U.S.C.) § 415(c)(7)(A) https://uscode.house.gov/view.xhtml?req=(title:26%20section:415%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section415)&f=treesort&edition=prelim&num=0&jumpTo=true

 

26 C.F.R. § 1.415(c)-1(d)(1) https://www.ecfr.gov/cgi-bin/text-idx?SID=425f2e3cbe3d69842827c8207e7cb627&mc=true&node=se26.7.1_1415_2c_3_61&rgn=div8