Section 403(b) plans have a special catch-up feature that can allow long-term employees the ability to make additional contributions in the latter part of their careers. The calculation of the special catch-up is complicated and must take into account prior contributions over an extended period of time.
The expanded contribution limits are available to employees with more than 15 years of service with a “qualified organization.” This is defined as:
- An educational organization
- A hospital
- A home health service agency
- A health and welfare agency
- A church or convention of churches
A participant who qualifies for the special catch-up under Code section 402(g)(7) is allowed an additional deferral of up to $3,000 per year. This increase is on top of the regular catch-up limit for individuals over age 50. This means that an individual who qualifies for both catch-ups would have a 2016 elective deferral limit of $27,000 (the 401(k) limit of $18,000, plus the regular catch-up limit of $6,000, plus the special catch-up limit of $3,000).
Service is only counted with one qualified organization and its predecessor. The amount of the special catch-up is limited to a lifetime $15,000 and is reduced by a formula that takes into account years of service and prior elective deferrals.
The special catch-up limit is unique to 403(b) plans and can be a boon to a qualified individual who desires to maximize his or her retirement benefits. The calculation of the limit does require that records on qualified individuals be maintained beyond the normal 10-year retention period.
For more information or questions about how this feature affects your plan, please contact Richard Green at rgreen@windes.com or by phone at 844.4WINDES (844.494.6337).