“I have the participant’s entire history of elective deferrals necessary to complete the calculation, but had some questions as to whether there are any deferrals I should exclude, such as past deferrals under the 15-year catch-up election, or past deferrals under the age-50 catch-up election. Are all deferrals included, or are some excluded?” 

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

First of all, the Experts congratulate you for taking on the daunting task of attempting to calculate the 15-year catch-up election! For the uninitiated, the 15-year catch-up election is a special election whereby certain participants of certain 403(b) plan sponsors (not all plan sponsors are eligible) who have worked with the plan sponsor for 15 years or more can elect to defer in excess of the normal 402(g) plan limit ($18,000 for 2016, $24,000 if age 50 or older). As we have pointed out in a previous Ask the Experts column, it is one of the most difficult calculations in the world of 403(b) plans, which is why an increasing number of plan sponsors have chosen to eliminate this cumbersome election.                             

Presuming your plan still maintains the election, however, this is an excellent question, as indeed there is different treatment of different types of elective deferrals for purposes of determining the total amount of past elective deferrals the employee has made. The IRS 403(b) Plan Fix-It Guide summarizes the issue nicely, as follows:

The amount of the special 15-year catch-up and the underused amount is equal to the lesser of:

• $3,000;
• $15,000 reduced by the sum of prior years’ 15-year catch-up deferrals; or
• $5,000 x years of service with the employer, minus the total of all elective deferrals made to a 403(b), 401(k), SARSEP or SIMPLE IRA plan maintained by the employer, including the 15-year catch-up, but excluding the age 50 catch-up.

The Experts have highlighted the relevant text in boldface. All deferrals to the listed plans must be counted, EXCEPT for the age-50 catch up election. Thus, let’s say this is the first year of a participant’s eligibility for the 15-year catch up election. However, the participant turned 50 years of age last year, and elected to fully utilize the age-50 catch-up election and defer the full $24,000 to her 403(b) in 2015. In order to perform the 15-year catch-up calculation, we would need to subtract $6,000 (the amount of the age-50 catch-up election) from the total of all past elective deferrals for this employee.

Furthermore, past deferrals under the 15-year catch-up election are INCLUDED in the total of all past deferrals by the employee. Deferrals under the 15-year catch-up election also count against a $15,000 lifetime limit of deferrals under this election. As pointed out previously by the Experts, however, past deferrals under the 15-year catch-up election are not always apparent if the participant is eligible for both the 15-year and age-50 catch-up elections, so this component of the calculation needs to be thoroughly reviewed in such cases.

Thank you for your question!

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.