575 7th Street, NW
Washington, DC 20004
Phone: (202) 344-4715
Fax: (202) 344-8300
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- Elective contributions limits
- Limits raised:
- From $8,500 in 2001 to $11,000 for 2002, rising to $15,000 for 2006.
- Catch-up limits for governmental
- For each of the three years prior to retirement, the catch-up becomes double the dollar limit.
- Employees age 50 and over can get an extra (catch-up deduction) of $1,000, going to $5,000 by 2006. However, this special catch-up does not apply in the three years of the special
- Although these are referred to as “catch-up” limits, and the legislative history indicates that they are intended to “enhanc[e] fairness for women,” they are not dependent on having made less than the permissible contributions for any prior year.
- 33-1/3% of compensation limit rises to 100% of compensation.
- Definition of compensation for
457(b)purposes is not modified, and excludes elective contributions to 457(b)plans themselves.
- Although legislative history refers numerous times to desire to make
457(b)limits equal to those for 403(b)and 401(k)plans, limit on elective contributions to 457(b)plans is only 50% of pre-deferral compensation, rather than 100% that will now apply to 403(b)and 401(k)plans.
- Possibility of technical correction?
- Limit continues to apply to all contributions to
457(b)plans, but only to elective contributions to 403(b)and 401(k)plans. Thus, matching elective 457(b)deferrals with employer contributions to a 401(a) plan rather than a 457(b)plan continues to be a good strategy for governmental employers.
- Coordination among elective contribution limits for 401(k)/
403(b)plans, and limits for 457(b)plans, eliminated.
- Other Legislative Changes
- Requirement of one-time election on timing of distributions from
457(b)plans is eliminated.
- Rollovers of distributions will be permitted among 401(a) plans,
403(b)plans, governmental 457(b)plans, and IRAs, if the receiving plan permits such rollovers.
- Money from a governmental
457(b)plan can be used to purchase service credit in a 401(a) defined benefit plan, even at a time when a distribution is not otherwise allowed, if both the transferring and receiving plan permit such transfers.
- Domestic relations order rules for
457(b)plans coordinated with current rules for qualified plans.
- Practical Effects
- Increased pressure for
457(b)plans, even among those who already have 403(b)or 401(k)plans.
- Increased pressure for employer and/or statewide plan involvement in structuring of
457(b)plans, because most of the new options are not mandatory.
- May help with traditional problems of how to allow individuals to purchase service credit over a long period of time, since money can now be accumulated in a