Governmental Employer that sponsors a 403b plan

Submitted by Kevin O'Hearn on Wed, 2023-07-26 23:08

Hello,

An employee works for a governmental employer that sponsors a 403b plan. The employee is 55, so they can defer $30,000 of their salary into the plan for 2023 when utilizing the catch-up provision. Their salary is $100k. The plan requires a mandatory 9% salary deferral into the 403b plan that the employee cannot opt out of.

1. The employee was told that the 9% mandatory contribution would not count toward the 402g limit….so they could defer a total of $39k into the plan…..the $9k mandatory deferral plus the $30k deferral subject to the 402g limit. I have found articles confirming this is true and that mandatory salary deferrals are not required to be reported on employees’ W2s. Is this correct?

Thank you.



Submitted by Alan - IRA critic on Wed, 2023-07-26 23:58

  • Yes, that is correct. See the following IRS document re non elective contributions:
  • How Can Contributions Be Made to My 403(b) Account?Generally, only your employer can make contributions to your 403(b) account. However, some plans will allow you to make after-tax contributions (defined below).The following types of contributions can be made to 403(b) accounts.
    1. Elective deferrals. These are contributions made under a salary reduction agreement. This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit. Except for Roth contributions, you don’t pay income tax on these contributions until you withdraw them from the account. If your contributions are Roth contributions, you pay taxes on your contributions but any qualified distributions from your Roth account are tax free.
    2. Nonelective contributions. These are employer contributions that aren’t made under a salary reduction agreement. Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions made by your employer. You don’t pay income tax on these contributions until you withdraw them from the account.
    3. After-tax contributions. These are contributions (that aren’t Roth contributions) you make with funds that you must include in income on your tax return. A salary payment on which income tax has been withheld is a source of these contributions. If your plan allows you to make after-tax contributions, they aren’t excluded from income and you can’t deduct them on your tax return.
    4. A combination of any of the three contribution types listed above.

Submitted by Kevin O'Hearn on Thu, 2023-07-27 16:07

Thank you Alan. The type of arrangement I am referring to doesn’t seem to be any of the contribution types you sent over. It describes the mandatory contributions as employer contributions. I am referring to mandatory employee contributions that come from salary. I am trying to ascertain if these mandatory salary deferrals would count toward the 402(g) limit? So if the employee is 55 years old, can he defer $30k up to the 402g limit in addition to the mandatory contributions that are made from his salary?

Submitted by Alan - IRA critic on Thu, 2023-07-27 16:58

They do not count against the 402(g) limit because they are not elective – they are mandatory and included in the non elective contribution summary posted above. Therefore, they are in addition to the 30k elective deferral limit including catch up contributions.

Submitted by Patrick Szary on Wed, 2023-08-02 21:24

I have similar situation with a 403b and mandatory contributions that I can’t opt out of. I always understood it to be that my mandatory contribution fell under “employer pickup”. On my W2 the madatory contributions show under box14 as 414H…. thus they aren’t employee contributions anymore, they’re “picked up” and treated as employer contributions and not subject to the contribution limits.  Clearing the way for me to still contribute up to the maximum elective deferral limit, i.e. completely separate for the mandatory contribution. https://www.irs.gov/government-entities/federal-state-local-governments/employer-pick-up-contributions-to-benefit-plans

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