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Special 457b Catchup Provisions

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My wife would like to maximize contributions to her 457b over the next three years beyond the $20,500 allowed to someone over 50. We have inquired into the regulations that govern being able to contribute up to $30,000. The plan document seems to put the normal retirement age at 55 (though, in reality, no one or hardly anyone ever retires at that age and pensions are not available until one is 60). The question is whether this mention in the plan document means that one could only take advantage of the special catchup contributions, therefore, at age 52-54. The plan administrator does not seem to be too savvy about this matter nor does the rep from the investment firm who gets all the 457b business.

 

Frank

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Guest Sierra

Deferral Acceleration for Retirement (DAR) can be elected in the three years before the participant's designated Normal Retirement Age (NRA), which is any age in the range of years beginning when a participant may retire and receive full pension benefits (age 60 in your wife's case) up until age 70 1/2. So the earliest age she can commence the DAR is age 57. You do not count the year she "will" retire. If she does this it does not mean that she is forced to retire at age 60. It means you can never use the DAR again.

 

Peace and Hope,

Joel

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I very much appreciate your reply, Joel, but still need to convince both the finance company rep and the plan administrator that it is legal for my wife to take DAR. Your defintion of NRA seems to be a different one than they are working with. For them, NRA is precisely the age 55 stated in the plan document. So, I guess I am in need of some authoritative locus that I can share with them about what NRA means, if, indeed, it is different than what they think it means. Do you know where I can find an authoritative reference?

 

 

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Guest Sierra

Buff:

 

Go to the 457(b) message board at: www.benefitslink.com and post your issue. Let us know what you came up with.

 

Joel

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Here's what Regs. Section 1.457-4©(3)(v)(A) says:

 

"A plan may define normal retirement age as any age that is on or after the earlier of age 65 or the age at which participants have the right to retire and receive, under the basic defined benefit pension plan of the State or tax-exempt entity (or a money purchase pension plan in which the participant also participates if the participant is not eligible to participate in a defined benefit plan), immediate retirement benefits without actuarial or similar reduction because of retirement before some later specified age, and that is not later than age 70. Alternatively, a plan may provide that a participant is allowed to designate a normal retirement age within these ages. For purposes of the special section 457 catch-up in this paragraph ©(3), an entity sponsoring more than one eligible plan may not permit a participant to have more than one normal retirement age under the eligible plans it sponsors."

 

So, the plan's capacity to designate any old normal retirement age is limited to at or after NRA under "the basic" pension plan of the sponsor. Where there is no pension plan, the age can't be less than 65.

 

So, to answer the question, you have to look at "the basic" pension plan to see if it reduces the permitted NRA below 65. If it doesn't, the plan may not be an eligible plan under 457, which ought to scare at least the administrator.

 

This assumes your wife is not a police or firefighter, in which case the plan can use any age between 40 and 70.

 

Tom Geer

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Guest Sierra

Here's what Regs. Section 1.457-4©(3)(v)(A) says:

 

"A plan may define normal retirement age as any age that is on or after the earlier of age 65 or the age at which participants have the right to retire and receive, under the basic defined benefit pension plan of the State or tax-exempt entity (or a money purchase pension plan in which the participant also participates if the participant is not eligible to participate in a defined benefit plan), immediate retirement benefits without actuarial or similar reduction because of retirement before some later specified age, and that is not later than age 70. Alternatively, a plan may provide that a participant is allowed to designate a normal retirement age within these ages. For purposes of the special section 457 catch-up in this paragraph ©(3), an entity sponsoring more than one eligible plan may not permit a participant to have more than one normal retirement age under the eligible plans it sponsors."

 

So, the plan's capacity to designate any old normal retirement age is limited to at or after NRA under "the basic" pension plan of the sponsor. Where there is no pension plan, the age can't be less than 65.

 

So, to answer the question, you have to look at "the basic" pension plan to see if it reduces the permitted NRA below 65. If it doesn't, the plan may not be an eligible plan under 457, which ought to scare at least the administrator.

 

This assumes your wife is not a police or firefighter, in which case the plan can use any age between 40 and 70.

 

Tom Geer

 

 

Tom:

 

His wife's basic plan allows for full pension benefits at age 60. This means she can designate her Normal Retirement Age to be any age from 60 to 70-1/2. So if she wants to effectuate her DAR asap she may begin it at age 57. We do not count age 60 which is her designated NRA. This does not mean she needs to retire at age 60. It just means she cannot use the DAR (catch up provision) again. Do you agree?

 

Joel

 

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