(b)lines Ask the Experts – Paying for Retirement Incentives by Reducing 403(b) Contributions

“Since our target group all has well-funded retirement plan account balances, we were thinking of paying for some of the incentives by reducing or eliminating contributions to our 403(b) retirement plan for those who are 70 or older, since none of these employees will need the additional retirement funding. Can we do this?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

Generally, no. The Age Discrimination in Employment Act, or ADEA, specifically prohibits any reduction or elimination of an employer contribution to a defined contribution retirement plan on the basis of age, as follows (boldface text is the Experts’ emphasis):

(i) Employee pension benefit plans; cessation or reduction of benefit accrual or of allocation to employee account; distribution of benefits after attainment of normal retirement age; compliance; highly compensated employees

(1) Except as otherwise provided in this subsection, it shall be unlawful for an employer, an employment agency, a labor organization, or any combination thereof to establish or maintain an employee pension benefit plan which requires or permits—

(A) in the case of a defined benefit plan, the cessation of an employee’s benefit accrual, or the reduction of the rate of an employee’s benefit accrual, because of age, or

(B) in the case of a defined contribution plan, the cessation of allocations to an employee’s account, or the reduction of the rate at which amounts are allocated to an employee’s account, because of age.

Though you did not state whether you’re a public or private higher education institution, it should be noted that the ADEA generally applies to all 403(b) plan sponsors, public or private, who have more than 20 employees.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.