(b)lines Ask the Experts – Employer Contribution Limits for 403(b)s and 457(b)s

“We wish to make an employer contribution to our 457(b) plan for an employee. Will that contribution impact the employee’s 415 limit?”  

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

Your question is an interesting one, since it is illustrative of the fundamental differences between contributions to retirement plans, such as a 403(b) plan, and deferred compensation plans, such as a 457(b) plan. In a retirement plan such as a 403(b) plan, there are separate limits for elective deferrals and for combined employer and employee contributions (including elective deferrals).  In a deferred compensation plan, all contributions are considered to be a single contribution type; namely, compensation that is deferred until some future event where it no longer can be deferred (e.g. termination of employment). Thus, even though, in your example, the employer is making the contribution to the 457(b) plan, it is no different than employee elective deferrals to the 457(b) plan for contribution limit purposes; both types of contributions are considered to be compensation deferred to the plan, subject to a single limit under 457(e) (lesser of 100% of compensation or $17,500 in 2014, subject to certain catch-up rules). Thus, there is no 415 limit on combined employer and employee contributions to a 457(b) plan, since there is no such thing separate employer and employee contributions for 457(b) contribution limit purposes. The contribution limit differences between the two plans can best be illustrated by following chart:

(*Both the 403(b) and 457(b) limits are subject to certain catch-up rules that we won’t go into here.)

Thus, to return to your question, employer contributions to a 457(b) plan would be treated the same as elective deferrals to a 457(b) plan; they would have no impact on an individual’s contribution limit to his/her 403(b) plan with the same employer.