Ask the Experts December 20, 2022

What Are The Maximum Deferral Limits When Both A 403(b) and 457(b) Plan Are In Place?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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I recently read your 2021 Ask the Experts column on the maximum deferral limit when both a 403(b) and 457(b) plan are in place. Is it possible that the Experts can update that column with the 2023 figures? Thanks!

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

Absolutely, and it is quite appropriate to do so given the significant increase in the dollar limits due to inflation.

The 2023 limit is quite a bit of money, with the ultimate answer dependent on which catch-up contributions a plan sponsor offers and an employee’s eligibility for those provisions. Eligible employees who elect to make deferrals to both plans will generally be able to make up to $22,500 in deferrals to the 403(b) plan and another $22,500 in deferrals to the 457(b) plan in 2023, for a total of $45,000, provided that the employee has at least $45,000 in compensation to defer. (Note: If an employee received EMPLOYER contributions to the 457(b) plan, the $22,500 limit for that plan would be reduced by those contributions.)

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If an employee is age 50 or older by the end of 2023, and both the 403(b) and 457(b) plans permit the use of the age-50 catch-up election (only permitted under the 457(b) plan if it is a governmental plan), that total deferral limit would increase to $60,000 ($22,500 + $7,500 catch-up to each plan for 2023). If the 457(b) plan is a private tax-exempt plan, there is no age-50 catchup, and the combined limit is $52,500 ($22,500 + $7,500 catch-up to 403(b), plus $22,500 to 457(b)).

There are some more obscure elections which a small number of employees may use to further increase their contribution limits, provided the plan offers them. The first is the 457(b) three-year catch-up election, which allows the employee to contribute the lesser of twice the 457(b) limit or the 457(b) limit plus any unused limitations in prior years. If the plan offers the election and the employee qualifies, that could increase the maximum dollar deferral limit in the 457(b) plan to $45,000, making it possible for an employee to defer a total of $75,000 ($22,500 in deferrals + $7,500 in catch-up to the 403(b) plan and $22,500 in deferrals + $22,500 in three-year catch-up to the 457(b) plan) to both plans if he/she is older than 50 (note: the three-year catch-up and the age-50 catch up cannot be used in the same year in the 457(b) plan, or else this limit would be even higher in a governmental 457(b) plan).

The second election is the 403(b) plan 15-year catch-up election, which would allow for up to an additional $3,000 to be deferred to the 403(b) plan (for a total of $78,000 when added to the scenario described above), if the plan permits the election, and the employee qualified. However, this particular election is so difficult for plan sponsors to administer that many have opted not to offer it.

Keep in mind that as an employee’s deferrals increase, the section 415(c) limits may come into play, depending on the 403(b) plan’s level of employer contribution.

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 Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.
Deals and People December 19, 2022

Lori Lucas Set to Step Down as Head of EBRI

Lucas cites DEI and accessibility as accomplishments in her five years at the retirement research institute.

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Lori Lucas

Lori Lucas, the CEO of the Employee Benefit Retirement Institute, plans to retire at the end of the year after almost five years at EBRI, leaving a legacy of increased accessibility and focus on diversity.

Prior to joining EBRI, Lucas had been the executive vice-president for defined contribution practice at Callan Associates, director of research at Aon Hewitt and an analyst at Morningstar.

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When she took over in 2018, she explained to PLANSPONSOR that she wanted to increase the accessibility of the research that EBRI produced. She says EBRI’s work is far more accessible now and cites as examples the various formats in which EBRI publishes its data, such as webinars and interactive infographics.

Lucas explains that prior to being CEO at EBRI, she was a consumer of their research. She knew many members wanted EBRI’s key findings and summaries of research to present to industry executives because, “Not everyone wants to read an entire issue brief.” This insight motivated the increased accessibility of ERBI’s research for its members.

In April 2023, EBRI will release its retirement security projection model, according to Lucas, using 401(k) and IRA data to project likely retirement outcomes for different cohorts of the population. The model can also be tweaked to account for the different retirement provisions in the SECURE 2.0 legislation. Lucas says there is currently a $3.6 trillion deficit from what American workers aged 35 to 65 should have saved for retirement, and this model will measure how each provision could reduce that deficit.

Also due in the spring is the EBRI Retirement Confidence Survey. 2023’s survey will focus on the retirement confidence of caregivers, says Lucas. Caregivers, such as stay-at-home parents, work full-time and socially valuable jobs but are unpaid and do not enjoy the benefits of accessing an employer-sponsored retirement plan in their own names. As a result, they are especially vulnerable in retirement if they divorce or if their partner dies.

EBRI’s research shows that unmarried women, especially divorced women, have retirement savings balances that are often significantly lower than married women and men, Lucas says.

In her time at EBRI, Lucas says that perhaps the biggest change in the industry is the new focus on overall financial wellness of employees: “Retirement is no longer the sole focus of employers.” Future financial wellness must be paired with current financial stability, and employers are seeing that more and more. She specifically cites student loan assistance and emergency savings as items that both address short-term financial security and make long-term saving more feasible, both of which are also items addressed in the pending SECURE 2.0 legislative package.

Lucas is especially proud of the Diversity, Equity and Inclusion Council started at EBRI last year and EBRI’s related research on the financial wellness of women and minorities. One point she highlights is the importance of plan sponsors using different messaging with different demographic groups. She says the messenger’s background can affect how a message is received by different demographic groups and that multiple-choice questions given on surveys should account for different cultural perspectives so that the questions resonate and yield accurate responses.

As an example, Lucas explains that providing “prioritizing family over self” as an option when asking about barriers to retirement savings was particularly resonant with black and Hispanic respondents in EBRI’s data.

Lucas will now turn to writing, a longtime passion. She says she wants to write fiction and feels very fortunate she was able to save enough that she can turn from one passion, retirement research, to another, writing, in a financially sustainable way.

She calls her retirement an example of “leaving on a high note.”

 

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