Make-Up Contributions

Non-governmental 457(b) plan permits make-up contributions within the 3 years prior to Normal Retirement Age (age 65).

Participant is age 64 as of 12/31/2020 and his prior year contributions have been as follows:

For 2020, the last year in which the participant is eligible for make-up contributions, is his max make-up contribution $2,000 (the sum of the unused limits)? Or, is it $11,500, the sum of unused limits from 2013 - 2016? 

Basically, do I reduce the $11,500 each year in which he made make-up contributions? I think so, but just looking for confirmation.

If he made proper catch-up contributions prior to 2020, the balance on his underutilized amount in 2020 would be $2000 ($11,500 underutilized amount - $9500 catch-up), i.e. his max catch-up contribution in 2020 would have been $2000.

However, the bigger problem is that it looks like he made a $1000 catch up contribution in 2017, the year before he was eligible to do so, and because of that he exceeded the 2017 dollar limitation by $1,000. Also, 2020 would make 4 years of catch-up contributions (there really would be three years of catch up I suppose in 2018, 2019 and 2020, with an excess contribution of $1000 in 2017).

There's a theoretical question then of whether there is a $2000 or $3000 balance on the underutilized amount in 2020, but the 2017 excess contribution opens up a much bigger can of worms. See Rev. Proc. 2019-19, Sec. 4.09 and 1.457-4(e)(3). See also https://www.irs.gov/retirement-plans/457b-plans-correction-of-excess-deferrals

Perhaps there's some fail-safe language in the plan document characterizing the excess as 457(f)?

Agreed, Excellent point - thank you!