(b)lines Ask the Experts – Putting Excess Contributions into 457 Plans

August 20, 2013 (PLANSPONSOR (b)lines) – “We are a 501(c)(3) tax-exempt organization that sponsors a 403(b) plan and a 457(b) plan.
By PS

“Due to the composition of our workforce, we are likely to fail our ACP test in 2013. Can we simply provide the additional contribution to affected highly compensated employees under our 457(b) plan?” 

David N. Levine, Groom Law Group, answers:

That is an excellent question!

First, you’ll want to review your 457(b) plan to make sure you still have a “top hat” group being covered and it provides for a discretionary matching contribution based on 403(b) contributions. Remember that the definition of “highly compensated employee” for Internal Revenue Service (IRS) nondiscrimination purposes may not satisfy the requirements of the Department of Labor (DOL) “top hat” exemption.

Second, the 403(b) regulations specifically provide that there is no “effective opportunity” to defer (and thus the deferral universal availability rules for deferrals under 403(b) plans are not satisfied) if a benefit is conditioned on another benefit. However, matching contributions made to another defined contribution plan are carved out of this rule. 

So, if your 457(b) plan properly provides for the “make up” match, it appears to be permissible.

 

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.

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