Alternative to 402(g) limit

If permitted by a 403(b) plan, employees who have at least 15 years of service with the same employer may be eligible to exceed the normal Section 402(g) limit on elective deferrals. This is sometimes called the same desk rule.

Under this rule, the maximum contribution permitted is increased up to $3,000 per year over the 402(g) limit, subject to certain limitations. Eligible employers are educational institutions with students and faculty, hospitals, home health service agencies, churches, health and welfare agencies.

The annual increase to the limit on elective deferrals is the lesser of the following three amounts:

• $3,000;• A lifetime aggregate special 15 years of service catch-up limit

of $15,000 (for example, 5 years at $3,000 per year)• The excess of $5,000 times the number of years of service for

the organization, minus total elective deferrals contributed on the employee’s behalf for those years of service (for example, an employee with 15 years of service who has contributed in total $62,000 may make in aggregate $13,000 in special 15 years of service catch-up contributions: 15 years x $5,000 = $75,000 - $62,000 = $13,000

Catch-up contributions

Employees age 50 and older may make additional elective deferral contributions to 401(k), 403(b), and governmental 457(b) plans above the normal 402(g) and 415(c) limits, if stated in the plan document. The catch-up is not available in 457(b) tax-exempt plans. Although called catch-up contributions, they are actually available to everyone age 50 or over regardless of how much was contributed in the past.

The catch-up contribution for 2021 is $6,500.

For additional information on current catch-up contribution allowances, please go to www.IRS.gov.

Salary reduction agreements

In order to initiate elective contributions to a 401(k), 403(b) tax-sheltered annuity TSA or 457(b), an employee must complete a salary reduction agreement (or SRA), and submit it to the employer.

This agreement specifies the gross dollar amount or percentage of compensation the employee wishes to contribute via salary reduction each pay period. (The benefit of using a fixed percentage of compensation rather than a fixed dollar amount is its automatic recognition of adjustments in the participant’s compensation).

• Deferral of any income tax liability applies only to amounts earned after the agreement becomes effective.

• It is not possible to use a salary reduction agreement to defer income tax liability on compensation that has already been paid.

• An employee can terminate the agreement at any time with respect to income not yet earned.

In addition, employees can enter into multiple salary reduction agreements with the same employer in any year, in order to make contributions to multiple investment vendors.

• A new agreement is not needed to continue salary reduction from year to year.

• Any amounts that an employee elects to contribute via salary reduction are immediately vested. This is in contrast to employer matching contributions which are often vested over time.

Final Pay and Post-Employment contributions are also available, if specified in the plan document.

Maximum Allowance Contributions (MAC) Calculation

For use only by former MPCG Advisors who have transitioned to MassMutual

Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.

Metropolitan Life Insurance Company | 200 Park Avenue | New York, NY 10166L0321011846[exp0222][All States][DC] © 2021 MetLife Services and Solutions, LLC.

Final pay plan

When a client separates from employment, he or she may be due to receive a cash lump sum payment for unused vacation, personal or sick leave. If the funds are paid to the client as cash wages, he or she would owe current federal and state taxes on the amount paid. Instead, if required by the employer’s bargaining agreement or payroll policies, these payments may be contributed as employer contributions to a 403(b) Final Pay Plan.

The “final pay plan” must be specified in a written plan. Both elective and non-elective contributions can go into the same 403(b) contract, provided the contract will accept both employer contributions and employee salary reduction contributions.

The advantage of using a 403(b) plan is that it provides greater flexibility to receive non-elective contributions after severance.

The Plan may permit contributions to be made as late as five years from the date of severance.

The total of all contributions from the employer and the employee combined generally may not annually exceed the lesser of the employee’s compensation or $58,000 for 2021.

If the unused vacation, personal or sick pay exceeds the maximum contribution, it may be possible to contribute the remainder in subsequent years.

Participants should consult with tax and legal advisers.

Excess deferrals and contributions

Sometimes due to error or changes in compensation a person contributes more than is permitted according to the Maximum Annual Contribution calculation. The correction procedure for excess contributions will depend on which of the limits were exceeded.

If 415(c) limit is exceeded: To maintain the tax status of the plan, excess amounts must be corrected by the employer in compliance with IRS plan correction procedures to maintain the status of the plan. (Employer should consult tax adviser).

If the 402(g) elective deferral limit is exceeded:• Excess amount (as well as any earnings on this amount) should be

distributed to the employee by April 15th of the year following the year the contributions were made. Such a distribution will not be considered a premature distribution, and no penalty will apply. For purposes of taxation, the distribution will be broken down into a return of the excess contribution, and earnings. The excess will be taxable in the year in which the contribution was made, and the earnings will be taxable in the year of the distribution.

• If the excess is not withdrawn by the employee, no later than April 15, excess amounts must be corrected by the employer in compliance with IRS plan correction procedures to maintain the tax status of the plan. (Employer should consult tax adviser).

Contributions to 457(b) plans

Economic Growth and Tax Relief Reconciliation Act or EGTRRA contribution limits increased to the lesser of 100% of compensation or $19,500 in 2021 (indexed in same way as 403(b) limits).

Employees over age 50 are also eligible to use the catch-up elective deferral of $6,500 for government plans only (not available for 457(b) tax-exempt).

Employees eligible for both 403(b) and 457(b) plans are able to defer the full amount to both plans. In other words, contributing to a 403(b) plan doesn’t reduce the amount you are able to contribute to a 457 plan. You can contribute $19,500 and the catch-up of $6,500 to both a 403(b) AND to a 457(b).

Special catch-up contributions to 457(b) plans

In addition to the age 50 catch-up provisions previously discussed, 457 (b) plans allow participants to double up contributions in each of the last 3 years before the plan-specified normal retirement age.

This special catch-up contribution is available to participants of both 457 (b) governmental and tax-exempt organizations.

However, it should be noted that the over age 50 contribution is not available when taking advantage of the double up contributions in 457(b) governmental plans.

For use only by former MPCG Advisors who have transitioned to MassMutual

Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.