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Guest Sierra

John, you cannot be more wrong. The title of the 10 listed items says: "Top ten issues identified during examinations of IRC 403(b)/457 plans."

 

Item 3 says: "3. Excess 415 Contributions Made

 

Generally, the sum of elective deferrals and employer contributions cannot exceed the lesser of $44,000 ($45,000 in 2007) or 100% of Includible Compensation for 2006."

 

John, ifyou go down the list the Service will specify which item applies to just a 403b or just a 457(b). So simple logic dictates that if they do not make that important distinction then the item refers to both types of plans. You can bet my life that item 3 refers to both types of plans.

 

I defer to the audience. Is there a person out there that is of the opinion that item 3 applies only to 403(b) plans and NOT to 457(b) Plans.

 

Joel

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Joel: I agree with John because he is correct. If you go to www.irs.gov and go to the retirement plans community you can download the link to the 2007 Cola limits which states that the limits for a 457b plan is $15,500. You could also check out IRS publication 525 P 9 which confirms that the 457 limit for 2006 ( the most recent yr the pub is available) is 15,000. 457 plans are not subject to the 415 limits.

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Guest Sierra

Your being self serving to put it politely. Item 3 is silent as to which plan it is referring to. You have made a pre-determined decision that it does NOT apply to 457(b) so it must apply only to 403(b). Did Carol get back to you?

 

Joel

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Sierra, I'm going to have to side with John on this one. It's a pretty well documented issue, especially for colleges and employers who issue "fringe" benefits to school employees.

 

 

 

The IRS brochure was also pretty clear - It documents $41,000 for 401 and 403, but only $15,000 for 457. The difference being the allowable employer contributions.

 

 

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Guest Sierra

 

IRC section 415© says: (The "annual addition" is adjusted for inflation annually. The "annual addition" for 2007 is $45,000. 457(b) plans are clearly included)

 

© Limitation for defined contribution plans

(1) In general

Contributions and other additions with respect to a participant exceed the limitation of this subsection if, when expressed as an annual addition (within the meaning of paragraph (2)) to the participant’s account, such annual addition is greater than the lesser of—

(A) $40,000, or

(B) 100 percent of the participant’s compensation.

(2) Annual addition

For purposes of paragraph (1), the term “annual addition” means the sum of any year of—

(A) employer contributions,

(B) the employee contributions, and

© forfeitures.

For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402 ©, 403 (a)(4), 403 (b)(8), 408 (d)(3), and 457 (e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section 408 (k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section 419A (f)(2)) after separation from service which is treated as an annual addition.

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IRC section 415© says: (The "annual addition" is adjusted for inflation annually. The "annual addition" for 2007 is $45,000. 457(b) plans are clearly included)

 

© Limitation for defined contribution plans

(1) In general

Contributions and other additions with respect to a participant exceed the limitation of this subsection if, when expressed as an annual addition (within the meaning of paragraph (2)) to the participant’s account, such annual addition is greater than the lesser of—

(A) $40,000, or

(B) 100 percent of the participant’s compensation.

(2) Annual addition

For purposes of paragraph (1), the term “annual addition” means the sum of any year of—

(A) employer contributions,

(B) the employee contributions, and

© forfeitures.

For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402 ©, 403 (a)(4), 403 (b)(8), 408 (d)(3), and 457 (e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section 408 (k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section 419A (f)(2)) after separation from service which is treated as an annual addition.

 

 

Joel: your insistance on the application of the 415 rules to 457b plans (which have separate a limitation under 457b) is not boosting your credibility on any matter you discuss on this board.

 

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Guest Sierra

IRC section 415© says: (The "annual addition" is adjusted for inflation annually. The "annual addition" for 2007 is $45,000. 457(b) plans are clearly included)

 

© Limitation for defined contribution plans

(1) In general

Contributions and other additions with respect to a participant exceed the limitation of this subsection if, when expressed as an annual addition (within the meaning of paragraph (2)) to the participant’s account, such annual addition is greater than the lesser of—

(A) $40,000, or

(B) 100 percent of the participant’s compensation.

(2) Annual addition

For purposes of paragraph (1), the term “annual addition” means the sum of any year of—

(A) employer contributions,

(B) the employee contributions, and

© forfeitures.

For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402 ©, 403 (a)(4), 403 (b)(8), 408 (d)(3), and 457 (e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section 408 (k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section 419A (f)(2)) after separation from service which is treated as an annual addition.

 

 

John: Now that I gave you the statute that clearly reveals that the combined maximum contribution derived from employee and employer contributions in a 457(b) plan is $45,000 for 2007 are you still asserting it is $15,500?

 

 

 

IRC section 415© says: (The "annual addition" is adjusted for inflation annually. The "annual addition" for 2007 is $45,000. 457(b) plans are clearly included)

 

© Limitation for defined contribution plans

(1) In general

Contributions and other additions with respect to a participant exceed the limitation of this subsection if, when expressed as an annual addition (within the meaning of paragraph (2)) to the participant’s account, such annual addition is greater than the lesser of—

(A) $40,000, or

(B) 100 percent of the participant’s compensation.

(2) Annual addition

For purposes of paragraph (1), the term “annual addition” means the sum of any year of—

(A) employer contributions,

(B) the employee contributions, and

© forfeitures.

For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402 ©, 403 (a)(4), 403 (b)(8), 408 (d)(3), and 457 (e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section 408 (k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section 419A (f)(2)) after separation from service which is treated as an annual addition.

 

 

Joel: your insistance on the application of the 415 rules to 457b plans (which have separate a limitation under 457b) is not boosting your credibility on any matter you discuss on this board.

 

 

Intruder: Have you read the last paragraph? It clearly includes 457(b) plans. Here it is again in larger type:

 

For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402 ©, 403 (a)(4), 403 (b)(8), 408 (d)(3), and 457 (e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section 408 (k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section 419A (f)(2)) after separation from service which is treated as an annual addition.

 

 

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[

 

IRC section 415© says: (The "annual addition" is adjusted for inflation annually. The "annual addition" for 2007 is $45,000. 457(b) plans are clearly included)

 

Intruder: Have you read the last paragraph? It clearly includes 457(b) plans. Here it is again in larger type:

 

For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402 ©, 403 (a)(4), 403 (b)(8), 408 (d)(3), and 457 (e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section 408 (k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section 419A (f)(2)) after separation from service which is treated as an annual addition.

 

 

Joel: The last paragraph you rely on only states that employee contributions to a 403b plan subject to IRC 415© do not include rollovers from a govt 457b plan. Therefore if a govt employee rolls over a $40,000 distribution from a govt 457b plan to a 403b plan, the $40,000 is not counted as an employee contribution which reduces the $45,000 contributon limit. The parargraph you cite does not state that contributions to a 457b plan are annual additions under IRC 415 eligible for the $45,000 contribution limit.

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Guest Sierra

You could not be more wrong. The last paragraph simply means that rollover amounts from any other eligible plan DO NOT COUNT toward the "annual addition". The "annual addition" is comprised of employee and employer contributions (see statutory language) and is statutorily set at $45,000 for 2007. A rollover contribution, of any amount, to the 457(b) account has no impact on the "annual addition".

 

HERE IT IS AGAIN IN STATUTORY LANGUAGE:

 

IRC section 415© says: (The "annual addition" is adjusted for inflation annually. The "annual addition" for 2007 is $45,000. 457(b) plans are clearly included)

 

© Limitation for defined contribution plans

(1) In general

Contributions and other additions with respect to a participant exceed the limitation of this subsection if, when expressed as an annual addition (within the meaning of paragraph (2)) to the participant’s account, such annual addition is greater than the lesser of—

(A) $40,000, or

(B) 100 percent of the participant’s compensation.

(2) Annual addition

For purposes of paragraph (1), the term “annual addition” means the sum of any year of—

(A) employer contributions,

(B) the employee contributions, and

© forfeitures.

For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402 ©, 403 (a)(4), 403 (b)(8), 408 (d)(3), and 457 (e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section 408 (k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section 419A (f)(2)) after separation from service which is treated as an annual addition.

 

 

 

 

 

Vince: Are you ready to say you are wrong?

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Then why does the IRS Cola Notice for 2007 provide that the maximum contribution to a 457b plan is $15,500. Is the IRS misinterperting the limits? You are the only person who has claimed that the 457b limit is $45,000. You will not find one 457b plan that has such a limit.

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Guest Sierra

Then why does the IRS Cola Notice for 2007 provide that the maximum contribution to a 457b plan is $15,500. Is the IRS misinterperting the limits? You are the only person who has claimed that the 457b limit is $45,000. You will not find one 457b plan that has such a limit.

 

You are referring to the elective deferral limit (employee only) contribution.

 

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Then why does the IRS Cola Notice for 2007 provide that the maximum contribution to a 457b plan is $15,500. Is the IRS misinterperting the limits? You are the only person who has claimed that the 457b limit is $45,000. You will not find one 457b plan that has such a limit.

 

You are referring to the elective deferral limit (employee only) contribution.

 

Under reg 1.457-2(b)(1) the annual deferral from both employee and employer contributions to a 457b plan cannot exceed 15,500. There is no separate deferral for employee and employer contributions.

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Joel (Sierra),

 

I have reviewed your arguments. Based on all of the information available (the code and regulations, the IRS statements on their website and any other guidance I could get my hands on), the only response that I can reasonably conclude is that the $15,500 limit, plus any applicable catch-up is the true 457(b) maximum.

 

Now, that being said, Joel we can simply disagree going forward.

 

If you wish to advise your constituents to go for the full $45,000 inside their 457(b) plan, then I recommend that you add a caveat indicating that your position in this matter is perhaps very aggressive, and that you highly recommend to you clients that they seek competent legal counsel before attempting to go beyond the standard $15,500 plus catch-up. And for your own self-preservation, you should indicate that you cannot be held responsible in any fashion if it turns out that your aggressive stance is ever audited by the IRS (you should probably get your clients to agree to that in writing). These are mere recommendations, you can choose to act as you see best. If any of your clients actually seek legal counsel, then I would advise you that your business relationship with them may be at risk when legal counsel completes their analysis.

 

I wish you success! You will certainly have a more attractive 457(b) product than ours!

 

Perhaps the readers here would like to review these comments as well:

 

http://benefitslink.com/boards/index.php?showtopic=36727&hl=

 

I think you'll have to cut and paste it into the website address bar.

 

-Thanks,

John

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Here's an article that seems to have it right, that the $15,500 is the limit:

 

http://www.thechief-leader.com/news/2007/0824/columns/024.html

 

"For those who can afford to contribute no more than the per plan maximum of $15,500 for 2007, stop your contributions to your TIAA-CREF/403(b) now and contribute the remaining amount for 2007 to the NYSDCP/457(b)."

 

just an fyi.

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