How Should Plans Calculate Service for 403(b) 15-Year Catch-up Elections?

Q: How do you calculate service for purposes of the 15-year catch-up election for a 403(b) plan? Is it elapsed time, hours-counting, or some other measurement? 

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: The 15-year catch-up election is not calculated using an elapsed time or hours-counting method. Rather, the regulations set forth a unique method that requires special administration.

To be eligible for the 15-year catch-up election, an employee must have completed at least 15 years of service with the qualified organization sponsoring the plan. 

Under the regulations, a “year of service” is based on an employee’s work period, which may be different from the taxable year. For example, a teacher’s work period is the academic year, which may run from August to June. The sponsor must credit an employee who works full-time throughout the entire work period with a full year of service, and credit an employee who only works part-time, or full-time for part of the work period, with a fraction of a year.

There can be significant nuance in this analysis and professional analysis is key.

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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