415(c) limit

[Guest bill mahoney]

Question, does the 415© limit only apply to after tax contributions? Reason for the question is the mass Teachers Retirement Board has taken this stance when they improved their DB pension plan and long term employeees have to contribute another 6% of salary for a 5 year period to be eligible to use their "Retirement Plus" plan. Teachers that are retiring on July of 2001 they are allowing to put up to 100% of their salary into their DB plan to qualify for the extra benefit. This will mean some of my clients will be contributing almost 80% of their salary earned from 1/1/2001 to 6/30/2001. Their stance is the 415© limit of 25% of salary is only for after tax contributions.

[Guest Brian4]

There are a couple of issues here. State and local government plans can pick-up employee contributions under IRC section 414(h). For 415 purposes, these contributions are considered employer contributions. So, for defined benefit plans, the 415(B) defined benefit plan limits are the issue for 414(h) pick-ups, not the 415© defined contribution limits.

However, it is questionable whether the special additional contributions would qualify as pick-ups under IRC 414(h). The IRS does not generally allow amounts to be recognized as 414(h) pick-ups if the employee could have received the amounts as part of his or her salary. They have allowed irrevocable commitments to buy past service to be recognized under 414(h). But, these payments are usually made over a number of years. In this situation, it looks like the payments are made over a shorter period of time, and they are not made to purchase past service.

If the contributions do not qualify under 414(h), then you would have a problem, as the contributions would be after tax, and they would apparently exceed the 25% of pay or dollar limit) annual addition limit of IRC 415©.