Maximum Deferral When a 401(a), 403(b) and 457(b) Are Offered

“Our public university sponsors a 401(a) defined contribution plan, as well as 403(b) and 457(b) plans. The majority of our employees are eligible for all three. What is the maximum elective deferral that an employee eligible for all three plans can make for 2022?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

We partially addressed this question in our Ask the Experts column on the combined 403(b)/457(b) limit for public 403(b)-eligible employers, but that column needs to be updated for 2022. The general elective deferral limit for a 403(b)/457(b) plan combo would be $41,000 in 2022 ($20,500 to the 403(b) plan and $20,500 to the 457(b) plan). If an employee received EMPLOYER (i.e., nonelective) contributions to the 457(b) plan, that $20,500 limit for that plan would be reduced by those contributions. Further, if any employee received EMPLOYER contributions in EXCESS of $40,500 to the 403(b) plan (an unusual event in the Experts’ experience), the amount in excess of $40,500 would also effectively “crowd out” or reduce the $20,500 limit to the 403(b) plan (the limit on combined employer and employee deferrals to 403(b) accounts for 2022 is the lesser of $61,000 or 100% of includible compensation for the employee’s most recent service year).

If an employee is age 50 or older by the end of 2022, and both the 403(b) and 457(b) permit the use of the age-50 catch-up election, the combined elective deferral limit would increase from $41,000 to $54,000 ($20,500 + $6,500 catch-up to each plan). If your 457(b) plan offers the three-year catch-up election, the small number of employees who would qualify for that could defer up to $68,000 for each of the three calendar years prior to normal retirement age instead of $54,000 (for more on the three-year annual catch up election, see “Does the RMD Age Change Affect Rules for Special Catch-Up in 457 Plans?” In the rare event that your 403(b) plan offers the 15-year catch-up election, which would allow qualifying employees to defer up to an additional $3,000 to the 403(b) plan, the deferral limit would increase from $68,000 to $71,000 for those employees. For details on all these limit calculations, see the Ask the Experts column linked above.

Of course, all of these scenarios assume that employees have that much in compensation to defer in the first place, as employees may only defer up to 100% of compensation less any mandatory deductions, such as those for FICA federal payroll tax, to a retirement plan.

A 401(a) plan does not allow for pre-tax elective deferrals, nor does it allow for Roth contributions, unless it contains a 401(k) feature, which governmental entities are generally not permitted to have, except for some grandfathered plans. However, if the plan has an after-tax contribution provision, an employee could generally make after-tax contributions up to the lesser of the plan limit or $61,000, less any employer contributions to the 401(a) plan in 2022.

If short, your eligible employees can defer quite of bit of money to your combination of plans!

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.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.