(b)lines Ask the Experts – What Plan Types Count for Elective Deferral Limits?

“I know from a prior Ask the Experts column that we must be very careful when onboarding new employees to our 403(b) plan that they have not made any 401(k) or 403(b) elective deferrals to plans of their prior employer, since those would count against what they could defer to our plan in the same calendar year. Are there any other types of plans that would limit the employee’s elective deferrals as well?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

Indeed, there are other plans which must be included when applying the 402(g) limit ($19,000 for 2019, $25,000 if age 50 or older as of 12/31/19) to an employee’s deferrals. In addition to 401(k) and 403(b) plan deferrals, the amount of elective deferrals an employee could contribute to your 403(b) plan will be limited by deferrals to:

1)   A Simple IRA

2)   A SARSEP

3)   A Code Section 501(c)(18) plan (Note: This latter plan type, as special type of employee-funded pension that was generally created by labor unions, is quite rare nowadays, as no new plans have been allowed since 1959.)

It should be noted that 457(b) plans are a notable exception; deferrals to a 457(b) plan do NOT count against the 402(g) elective deferral limit. It also should be noted that elective deferrals include Roth contributions, but do NOT include employer or employee mandatory contributions or employee after-tax contributions, as those are not subject to the 402(g) limit.

How would you find out if an employee has deferred to any of these plans? Well, you could ask the employee, but he/she may not know. A better method is to obtain the employee’s W-2(s) for the prior year at the time of onboarding; the W-2 does not tell you about deferrals for the current calendar year, but the employee is generally unlikely to have changed them since the prior year, and the W-2 can then be used to drill down on whether the same deferrals were made in the current calendar year.

In particular, you are looking in Box 12 for deferrals that would count against the 402(g) limit, which would be coded as follows:

Code Contribution Type

D   401(k) contributions   

E   403(b) contributions   

F   SARSEP contributions

G   457(b) contributions   

H   501(c)(18) contributions   

S   SIMPLE contributions

AA 401(k) Roth contributions

BB 403(b) Roth contributions    

EE 457(b)Roth contributions

Of these codes, only two 457(b) codes (G and EE) would NOT count against the 402(g) elective deferral limit.

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.