Possible 403b, 457, and DCP changes?

[cnceagles]

These possible changes seem like they could be pretty important to some of us:

• A single $18k/year limit for employees to combined 403b and 457 contributions (plus normal catch-ups for those >=50).


• A single limit of $54k per year total for all contributions (both employee and employer) for defined contribution plans, 403b, and 457 contributions.

These changes seem to have survived committee markup in the Senate plan.

--

From the Senate plan:

The proposal applies a single aggregate limit to contributions for an employee in a governmental section 457(b) plan and elective deferrals for the same employee under a section 401(k) plan or a 403(b) plan of the same employer. Thus, the limit for governmental section 457(b) plans is coordinated with the limit for section 401(k) and 403(b) plans in the same manner as the limits are coordinated under present law for elective deferrals to section 401(k) and
section 403(b) plans.

The proposal repeals the special rules allowing additional elective deferrals and catch-up contributions under section 403(b) plans and governmental section 457(b) plans. Thus, the same limits apply to elective deferrals and catch-up contributions under section 401(k) plans, section 403(b) plans and governmental section 457(b) plans.

The proposal repeals the special rule allowing employer contributions to section 403(b) plans for up to five years after termination of employment.604

The proposal also revises application of the limit on aggregate contributions to a qualified defined contribution plan or a section 403(b) plan (that is, the lesser of (1) $54,000 (for 2017) and (2) the employee’s compensation). As revised, a single aggregate limit applies to contributions for an employee to any defined contribution plans, any section 403(b) plans, and any governmental section 457(b) plans maintained by the same employer, including any members of a controlled group or affiliated service group.

p. 179 of https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf

[TheGipper]

Who knows if this will make the final cut. Probably not completely unfair that governmental 457b is lumped with 401k/403b for employer and aggregate limits as it basically functions the same way. Doesn’t appear as if non-governmental 457b is included in these restrictions.

Also slight pain in proposed elimination of Roth IRA recharacterizations and “Rothification” of >50 catch up contributions (though amount increased from 6k to 9k).

[cnceagles]

I agree that the final bill is a mystery, though I suspect this is the kind of change that would survive a Senate vote and the conference committee.

If adopted, it will affect expected savings plans for next year - including by pushing up AGI and thus reducing access to regular Roth IRA contributions. This would happen in my case.

As a note, a number of local governments don't contribute to social security, which is one reason I suspect government employees were given access to expanded tax-deferred space.

[mitochondria]

cnceagles wrote:

These possible changes seem like they could be pretty important to some of us:

• A single $18k/year limit for employees to combined 403b and 457 contributions (plus normal catch-ups for those >=50).


• A single limit of $54k per year total for all contributions (both employee and employer) for defined contribution plans, 403b, and 457 contributions.

These changes seem to have survived committee markup in the Senate plan.

—

From the Senate plan:

The proposal applies a single aggregate limit to contributions for an employee in a governmental section 457(b) plan and elective deferrals for the same employee under a section 401(k) plan or a 403(b) plan of the same employer. Thus, the limit for governmental section 457(b) plans is coordinated with the limit for section 401(k) and 403(b) plans in the same manner as the limits are coordinated under present law for elective deferrals to section 401(k) and
section 403(b) plans.

The proposal repeals the special rules allowing additional elective deferrals and catch-up contributions under section 403(b) plans and governmental section 457(b) plans. Thus, the same limits apply to elective deferrals and catch-up contributions under section 401(k) plans, section 403(b) plans and governmental section 457(b) plans.

The proposal repeals the special rule allowing employer contributions to section 403(b) plans for up to five years after termination of employment.604

The proposal also revises application of the limit on aggregate contributions to a qualified defined contribution plan or a section 403(b) plan (that is, the lesser of (1) $54,000 (for 2017) and (2) the employee’s compensation). As revised, a single aggregate limit applies to contributions for an employee to any defined contribution plans, any section 403(b) plans, and any governmental section 457(b) plans maintained by the same employer, including any members of a controlled group or affiliated service group.

p. 179 of https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf

Click to expand...

This is at least the second time I've seen "A single limit of $54k per year total for all contributions (both employee and employer) for defined contribution plans, 403b, and 457 contributions." mentioned in a WCI post.  It perhaps is a result of my misunderstanding of the difference between a governmental 457b and a nongovernmental 457b account.

The benefits department at the university I work at has taken the position that my governmental 457b does not apply to the 415(c) limit of employee + employer 403b contributions of $54,000.  In addition, catch-up contributions to both the 403b and 457b do not count either.  Thus, I'm planning (in 2018) to contribute (I'm 53 years old) the maximum to my 403b ($18,500 + $6,000 = $24,500) and the maximum to my 457b ($18,500 + $6,000 = $24,500) for a total of $49,000.  My employer will contribute $27,500.  My employer views this as $18,500 + $27,500 = $46,000 that counts towards the 2018 415(c) limit of $55,000 and is well below it.

I have a colleague who informed me that the University of Michigan interprets the 415 (c) limit same way.  Interestingly, I went to my employer's Benefits Fair and a TIAA-CREF representative believed that the 457b counted towards the 415(c) limit! , but that individual exhibited uncertainty in their voice.

Seems to be different perspectives depending on who you ask, but I wonder what other folks are hearing from their employers?

[cnceagles]

Many public universities have defined contribution plans (DCP) in lieu of contributions to a defined benefits (pension) plan. In addition, public universities often allow employees to contribute to 403b and governmental 457 plans. In the those cases, the university doesn't contribute, but the employee has access up to the $24500 (including catch-up) limit for each plan. Many universities have followed the interpretation that neither of those $24500 limits overlaps with the other. In addition, they often follow the interpretation that neither of those limits overlaps with the $54000 limit imposed on the DCP.

My understanding is that those interpretations change as of 12/31/17 in this Senate bill.

First, 403b and governmental 457 plans will have a single (maximum) $24,500 contribution limit for employees contributions.

Second, those contributions can only occur up to the $54,000 limit that will be imposed on the aggregate of the DCP, 403b, and governmental 457. So if the university makes a contribution to a DCP, that will have the effect of limiting the amounts that can be put into the other plans.

At least this is my reading and those of people working at other universities.

[mitochondria]

Yes, I understand your point.  It would be interesting to see how this plays out.  This would definitely impact one of the perks of being in academics

[cnceagles]

Absolutely. Interestingly, for new hires, it makes the pension (defined benefit) more compelling (assuming you're willing to sacrifice mobility).

And a bunch of people will be in trouble on 1/31/18 if they forget to change their paycheck automatic deductions for 403b and 457.

[cnceagles]

It's on p. 295 in the bill language here: https://www.finance.senate.gov/imo/media/doc/11.20.17%20Tax%20Cuts%20and%20Jobs%20Act.pdf

[heathen]

Long time reader, listener and lurker. Perhaps I'm not putting in the right search term but I believe I fall in this category, so bringing an old thread back to life. Anyone have more info?

My situation:

- have access to govt 457 plan where I contribute 18.5k a year on top of the usual pension plan. No 401 or 403 offered by employee, neither is matching for 457. I started doing some work on the side and was planning on contributing to a individual 401k (18.5k + 20% of left over AGI) for the year 2018. My tax guy does not think I can even open an individual 401k (which I believe to be wrong) and recommends SEP-IRA. I am with WCI and is more open to i401 so I can continue with my backdoor roth contributions every year. But, I am looking to you folks for advice on whether I can contribute that extra 18.5k into a i401 this year. Hope that was clear Thanks

[JBME]

as far as I know, and it's been a long time since the tax cut cut cut act was passed, this never made it through. You can contribute yearly $18.5k to a 401k/403b and an additional $18.5k to a 457 plan. Your tax guy is completely wrong-from everything I've learned here you should go with a i401k

[spiritrider]

@JBME is absolutely correct. This is not even a close call under current law. What the future may bring, who knows.

The 402g employee elective contribution limit (2018 = $18.5K), only applies across all 401k, 403b, SIMPLE and SARSEP IRA plans combined. A 457b is a non-qualified plan with a total contribution limit equal to but not subject to the 402g limit. A 457b is also not subject to the 415c annual addition limit (2018 = $55K) on employee + employer contributions for each unaffiliated employer.

[Peds]

heathen wrote:

Long time reader, listener and lurker. Perhaps I’m not putting in the right search term but I believe I fall in this category, so bringing an old thread back to life. Anyone have more info?

My situation:

– have access to govt 457 plan where I contribute 18.5k a year on top of the usual pension plan. No 401 or 403 offered by employee, neither is matching for 457. I started doing some work on the side and was planning on contributing to a individual 401k (18.5k + 20% of left over AGI) for the year 2018. My tax guy does not think I can even open an individual 401k (which I believe to be wrong) and recommends SEP-IRA. I am with WCI and is more open to i401 so I can continue with my backdoor roth contributions every year. But, I am looking to you folks for advice on whether I can contribute that extra 18.5k into a i401 this year. Hope that was clear Thanks

Click to expand...

you need to immediately get rid of your "tax guy".

[heathen]

@JBME and @spiritrider, that’s great news! Thanks for your help. I haven’t been able to find anything contradictory elsewhere either but if I do, I’ll report back.