Question: Mandatory Contribution Does NOT Count Towards 403(b) Limits

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Lextalionis
Posts: 58
Joined: Wed Jun 12, 2019 4:46 pm

Question: Mandatory Contribution Does NOT Count Towards 403(b) Limits

Post by Lextalionis »

I am 49 and subject to the $20,500 limit on the 403(b) until next year and I can do the $6500 catchup. My employer funds a 457(b) when the 403 maxes out. This year we moved from 12 pay periods to 24 pay periods, so I expected to hit the max at the end July. My employer offers a 5% mandatory and 10% match. Well, July came and I rolled on past the 20.5k limit. I contacted HR, TIAA and could not figure out why the 457 had not kicked in. Apparently, the mandatory 5% is not subject to the limits and the employer match isn't either (which I knew but it is accounted separately). So MY contributions are currently at around 25k with 5k in employer match. This all still makes sense to me considering the 5% is not counted as voluntary and does not count towards the limit.

The 547 finally kicked over, but here is what I don't get. The 5% is still going to the 403 AND the 10% match is still going to the 403. By the end of the year in total around $32k will be in the 403. I keep trying to verify this with HR and TIAA and and they say it is correct because of the 402(g) limits.

Now, for example, let's just say this was all based on $100k salary and I can now make the catch up contribution for a total of $27k. The 5% mandatory would equal $5k/$5k match for the year. The 10% match would equal $5k extra after cutoff from the employer, and at that limit there would be $15k over the $27k limit for a total of $42k in the 403(b).

Does this seem correct? It is not an assumption, it is already occurring, but despite my discussions with HR I still feel that there is an accounting error and I will have to deal with a correction at year end. Thanks for your advice.
Walkure
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Joined: Tue Apr 11, 2017 9:59 pm

Re: Question: Mandatory Contribution Does NOT Count Towards 403(b) Limits

Post by Walkure »

The "mandatory" means an amount that the employer is obligated to put in regardless of whether you make an employee contribution, right? So you put in $27,000 Employee (20.5+6.5). They add $5,000 mandatory, and a 1:1 match on your contributions up to 10% of your salary, so in this case another $10,000. At year end this should be $42,000 in the account.
From IRS:
The limit on annual additions (the combination of all employer contributions and employee elective salary deferrals to all 403(b) accounts) generally is the lesser of: $61,000 in 2022
So all looks good. The employer would only spill over into the 457(b) if 27k+(15% of gross) exceeds 61k.

Edit: see that you are still 49. Will you be 50 by 12/31/22? If so, you are already eligible for the catchup. The IRS page linked above also mentions a catch up for employees with at least 15 years of service even if not 50, might that apply to you?
Topic Author
Lextalionis
Posts: 58
Joined: Wed Jun 12, 2019 4:46 pm

Re: Question: Mandatory Contribution Does NOT Count Towards 403(b) Limits

Post by Lextalionis »

Thanks for the confirmation. Seems like a large loophole for someone in a catch-up situation. With a a larger salary towards the end of their career.
snowday2022
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Joined: Sun Jan 16, 2022 1:48 pm

Re: Question: Mandatory Contribution Does NOT Count Towards 403(b) Limits

Post by snowday2022 »

Duplicate
Last edited by snowday2022 on Thu Aug 18, 2022 2:03 pm, edited 1 time in total.
snowday2022
Posts: 721
Joined: Sun Jan 16, 2022 1:48 pm

Re: Question: Mandatory Contribution Does NOT Count Towards 403(b) Limits

Post by snowday2022 »

I think this will answer your question. As I understand in talking with my HR, and having exceeded the 61K limit: The mandatory employee and employer contributions do not count. At my employee there are three plans, the mandatory plan, 403b and 457. Employer matches 10 percent up to federal benefits max (305K), mandatory. Employee mandatory match 5 percent. Then you get separate 20.5K limits for both 403b and 457. So highly compensated employees can save 87K pretax (56.5 of which is their own contributions). With catch up contributions can go even higher.

Not sure why more employers don’t do this to help their employees exceed the limit. It seems fairly common at universities.
placeholder
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Joined: Tue Aug 06, 2013 12:43 pm

Re: Question: Mandatory Contribution Does NOT Count Towards 403(b) Limits

Post by placeholder »

The 20.5k limit is for employee elective deferrals defined by the irs as:
The basic limit on elective deferrals is $20,500 in 2022, $19,500 in 2020 and 2021, $19,000 in 2019, $18,500 in 2018, and $18,000 in 2015 - 2017, or 100% of the employee’s compensation, whichever is less.
Elective Deferrals are amounts contributed to a plan by the employer at the employee's election and which, except to the extent they are designated Roth contributions, are excludable from the employee's gross income. Elective deferrals include deferrals under a 401(k), 403(b), SARSEP and SIMPLE IRA plan.
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