(b)lines Ask the Experts – 415(m) Plans Part II

“So, I read your recent Ask the Experts Q&A about 415(m) plans (see “Ask the Experts:What is a 415m Plan?”) and was fascinated! Could a hospital is that is a county or municipal hospital sponsor a 415(m) plan?  In the case of a public school, how do the contributions limitations (annual 415 limitations) apply?  Could a public school sponsor a 403(b), a 401(a), and a 457(b) for its higher-paid employees, and each one would have its own separate contribution limit (415 for the 403(b) and 401(a), and 457 for the 457(b) plan)? Does the 415(m) also have a separate contribution limit, or is it aggregated with any of the other plans? Am I asking too many questions?” 

Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:

Well to answer your last question first, since this is a Q&A column, our readers can never ask too many questions!

As for you other questions, yes indeed a county or municipal hospital can generally sponsor a 415(m) plan, which is a governmental plan, even though such employers are general “dual status” employers that are both governmental employers and 501(c)(3) tax-exempt charitable organizations. Keep in mind, of course, that the IRS has proposed regulations about how to determine whether a plan is a governmental plan, so you will want to consider whether a given employer’s plans will be governmental under those regulations. 

In the case of a K-14 public school, the 415 limitation does not often affect defined contribution plans, since the annual dollar limit there is quite large; it is the lesser of 100% of compensation or $51,000 (indexed) in 2013. The Experts have seen this limit exceeded at public colleges and universities (especially those with an employee mandatory contribution component), but less frequently at K-14 institutions. It sometimes happens with post-employment employer contributions of unused leave.  A 415(m) plan may also be utilized for contributions in excess of the 415 limit for defined benefit plans, which, since the 415 limit stated in terms of the actual annual benefit received ($205,000, indexed in 2013) is likely to be exceeded only for highly-paid employees.

And indeed, for individuals earning amounts that would result in contributions exceeding the contribution limits of any one plan, contributions could be made to up to four separate plans (403(b), 401(a), 457(b), and 415(m)) as you describe, with each plan having its own separate contribution limits. The 415(m) plan contributions are NOT aggregated with any of the other plans, but it is important to note that that 415(m) plans are only for 415 limit excesses—401(a)(17) compensation limit excesses, if the sponsor wishes to make up those, would have to be covered under another plan which, unlike a 415(m) plan, would be subject to the rules under 409A and 457(f), and so may not be tax advantaged.

The Experts thank you for all of your questions!

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.