(b)lines Ask the Experts – Deferring 100% of Paycheck

“Thus, she wishes to defer all of her pay to both plans so she will reach the annual limit for each plan. After mandatory deductions, she does earn enough to reach the deferral limits in both plans. Can she indeed defer 100% of pay less mandatory deductions as she desires to do?”  

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

The Experts answer is yes and no.  How is that for a clear answer? But allow us to explain.

For the 403(b) plan the answer is yes, presuming that the plan permits elective deferrals of up to 100% of pay, less any mandatory reductions such as FICA, Medicare, etc. The employee simply need to complete a salary reduction agreement for 100% of compensation up to the elective deferral limit, and payroll should implement the agreement effective with the next paycheck if that is consistent with current payroll practice. However, the employee will also need to complete a new salary deferral agreement effective 1/1/2015 in order to avoid continuing to defer 100% of pay in the new calendar year.

For the 457(b) plan, the answer is no. A difference between 457(b) plans and 403(b) plans is that salary deferral agreements are generally effective for the month following the month in which the agreement was executed, Thus, in order to defer pay for the month of December, 2014, a salary deferral agreement would have been required to have been completed by 11/30/2014, in order for deferrals to have commenced in December. Assuming that deadline passed in your instance, deferrals are not possible in the manner that the employee desires.

Thank you for your question!