Statutory Limits to Use for Non-Calendar Year Plans

“Our ERISA 403(b) plan has a non-calendar year plan year: July 1 to June 30. Our recordkeeper insists that in calculating the 415 contribution limit, we should use the dollar limitation for the calendar year in which our plan year ENDS, but for calculating the 401(a)(17) compensation limit, we should use the dollar limitation for the calendar year in which the plan year BEGINS. Could that possibly be correct?” 

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

Assuming the 415 limitation year in your plan is the plan year, your recordkeeper is indeed correct! Though it is not consistent and thus might not make sense to you, the dollar limitation for the calendar year in which the plan year begins is indeed used for 401(a)(17) limit purposes, while the opposite is the case for 415 limit purposes; the applicable dollar limit for that purpose is the calendar year in which the plan year ends. Keep in mind that, in almost all cases, the 415 limits for a 403(b) plan apply on the calendar year basis and not a plan year basis. See Treas. Reg. section 1.415(j)-1(e). 

It is this complexity, as well as for other reasons, that many plan sponsors opt to use a calendar year as their plan year. A calendar year plan year results in straightforward contribution limit calculations, as most of the limits are calendar-year based.

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.