(b)lines Ask the Experts – 457 Deferrals and Plan Limits

“I know what to do when an employee contributes to a 403(b)/401(k) at a prior employer; his dollar limit to our 403(b) is reduced by the amount of his deferral to the plan of his prior employer. But, what about 457(b) deferrals? I know that they do not affect the ability to defer to a 403(b) plan, but we also have a 457(b) plan to which this employee wishes to contribute. Does the amount he deferred to the 457(b) of his previous employer reduce the amount he may defer to our 457(b)? If it makes a difference, the employee’s prior employer was a public university, and we are a private university.”  

Michael A. Webb, vice president, Cammack Retirement Group, answers:

First of all, the Experts commend you for making certain that you take into account deferrals to retirement plans of a prior employer. Too often, employees who change employers mid-year do not find out that deferral limits span multiple employers until it is too late.

And yes, though the 402(g) limit does not apply to 457(b) plans, there is a similar provision of the Code Section 457 (457(c)) that limits deferrals to 457(b)s of multiple employers in the same year to a single dollar limit ($17,500 in 2014, same as the 402(g) limit). Thus, deferrals made to the prior employer’s 457(b) will indeed reduce the amount that the employee may defer to the 457(b) plan that you sponsor. 

In your particular employee’s situation, if he or she is age 50 or older, the employee may have been able to defer an additional $5,500 to his/her prior employer’s plan under the age-50 catch-up election; such an election is not permitted in your plan, since your plan is not sponsored by a governmental entity. Otherwise, the fact that one plan is governmental and one is not has no impact on the contribution limit.

In addition it should be noted that, unlike in a 403(b) plan, employer contributions to a 457(b) plan are also considered to be deferrals that count against the 457(b) limit. A single $17,500 limit in 2014 applies to all contributions to 457(b) plans of multiple employers, whether contributed by the employer or employee.

Thank you for your question!