(b)lines Ask the Experts – Employee Concerns About Eliminating the 15-Year Catch-Up

As discussed in your recent Ask the Experts columns ‘Can the 15-year Catch-up be Phased Out?’ and ‘Should the 15-year Catch-up be Eliminated?’ we have decided to eliminate the 15-year catch-up election from our 403(b) plan, effective 1/1/2016.

“However, we have received some resistance from employees, even though very few employees actually utilize the election! Can the Experts make some suggestions as to how to address employee concerns?”

Michael A. Webb, vice president, Cammack Retirement Group, answers:      

The Experts are not surprised that you have encountered some resistance, as unlike other types of plan changes that may serve to enhance the plan, this change is a clear takeaway, albeit an extremely minor one for what is often an extremely small fraction of plan participants.

And indeed, there are many possible concepts that you can communicate to affected employees to address the situation. Assuming such concepts are properly communicated, the affected employees may still not feel overwhelmingly positive about the plan change, but proper communication may help them to understand why the change was made.

Such concepts that could be communicated to employees include the following:


  • The use of the election increases the risk of audit, both on a plan level and an individual participant level;
  • Though frozen for 2016, elective deferral limits, are at historic highs; $18,000 for most employees and $24,000 for employees who are age 50 or older;
  • If you maintain a 457(b) plan, at least some employees might have the opportunity to offset the “missed” 403(b) catch-up election by deferring up to an additional $18,000 ($24,000 for age 50 and older employees in governmental plans). This is particularly true for public entities and 414(e) religious organizations (so-called nonqualified church-controlled organizations), since 457(b) plans can be made available to all employees (457(b) plans of private, non-church related tax-exempts are limited to a group of select management/highly compensated employees);
  • Even if you do not maintain a 457(b) plan or affected employees are not eligible, employees may be able to save in tax-qualified retirement vehicles outside of your retirement program (such as an IRA) or other investment vehicles that provide for favorable tax treatment; and
  • Make certain that employees understand how the 15-year catch-up works and how difficult it is to utilize as a practical matter, such as requiring records of all years’ prior contributions, and that if they contributed the maximum amount every year, it could not be utilized anyway.


Hopefully, some or all of these concepts will resonate with your employees. Thank you for your question, and best of luck with the transition!


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.