Is the 403(b) Plan 15-Year Catch-Up Election a 'Dinosaur'?

By Mike Webb, © Cammack LaRhette Consulting Oct 25, 2012

The optional 403(b) plan catch-up contribution election for employees with at least 15 years of service has long outlasted other provisions of the tax code related to 403(b) retirement plan contribution limits (remember the “exclusion allowance” calculation?). Though it has never been a required provision, it was rare that eligible organizations (now clarified in the final 403(b) regulationsto be educational organizations, hospitals, health and welfare service agencies, and church-related organizations) would prevent employees from using this catch-up election to potentially increase the amount participants can defer to a 403(b) plan.

However, the sentiment to continue the 15-year catch-up election as a stalwart provision of a 403(b) retirement plan is changing, and since the issuance of the final 403(b) regulations, a number of plan sponsors have eliminated, or plan to eliminate, this option.

15-Year Catch-Up Election: The Basics​

To understand one of the primary reasons the 15-year catch-up election is being revisited by many 403(b) plan sponsors, the basics of the election must be considered.

The election is available to participants who have completed 15 years of service to the employer sponsoring the 403(b) plan, and whose average lifetime deferral with the plan is not more than $5,000.

The 15-year catch-up election increases participants’ 402(g) elective deferral limit ($17,000 in 2012) by the least of the following amounts:

$3,000, or

The excess of $15,000 over the total elective deferrals made by the employee for prior years, or

The excess of $5,000 multiplied by the number of years of service the employee has with the plan sponsor, or the total elective deferrals made for the employee at the plan sponsor for prior years.

Confused thus far? If not, congratulations!

In addition, many plan sponsors make the mistake thinking the $3,000 amount is guaranteed, increasing the maximum deferral to $20,000 in 2012. The addition in recent years of the age-50 catch-up election, where an additional deferral of $5,500 is guaranteed, only adds to the confusion.

Others believe the 15-year catch-up can only be used for five years (five times the maximum dollar limitation of $3,000), when, in fact, if the 402(g) limit is exceeded by less than $3,000 in any given year, the election can continue until $15,000 is used up. Suffice to say that plan sponsors prefer simplicity in their 403(b) plans, and the 15-year catch-up election is anything but.

In addition, per the definition, the calculation of the limit requires the knowledge of participants’ entire contribution history, and historic data collection is not a strong point of many nonprofit employers. Vendors can often fill the gaps, but coordination of data can be difficult in multiple or legacy vendor situations, especially when participants may have used a vendor early in their working career that has long since be eliminated from the plan.

The Advent of the Age-50 Catch-Up

Years ago, the 15-year catch-up election was the only method of increasing the 402(g) elective deferral limit. In addition, other contribution limits greatly restricted what employees could defer to their 403(b) plans. Over time, those contribution limits were either eliminated or greatly relaxed, and the simpler age-50 catch-up election, which permits an increase in the 402(g) elective deferral limit of $5,500 without restriction, was added. Thus it can be argued that the use of a 15-year catch-up election has become less essential.

In addition, the IRS requires coordination between the 15-year and age-50 catch-up elections that can be quite problematic. This issue comes into play when participants are eligible for both the age-50 catch-up election and the 15-year catch-up election. The IRS has an ordering rule that states if the basic 402(g) limit on elective deferrals is exceeded, any excess is first attributed to the use of the 15-year catch-up election. Thus, if participants are eligible for both elections, the 15-year catch-up election must be calculated even if the intent is to use the far less complicated age-50 catch up election.

Let’s use an example to illustrate the complexity of the interaction of these limits: A participant who, at age 50, satisfies the requirements of the 15-year catch-up election (completed 15 years of service, average lifetime deferral with employer does not exceed $5,000, cumulative excesses under the election do not exceed $15,000), wishes to use the age-50 catch-up to defer $22,500 in 2011 (the $17,000 general limit plus the $5,500 age-50 catch-up).

Since the participant also qualifies for the 15-year catch-up election, the first $3,000 of the $5,500 excess is considered to be a 15-year catch-up contribution (since it's the maximum amount that can be used under the 15-year catch-up election), while the remaining $2,500 is attributable to the age-50 catch-up. Since this $3,000 will count against the $15,000 cumulative limit on excesses under the 15-year catch up election, it is possible that, if the participant defers in similar fashion in future years and later wishes to defer under both the 15-year and age- 50 catch-up elections, the participant may find that the 15-year catch-up limit has been exhausted even though he or she believes that it had never been used.

More importantly, this interaction requires the 15-year catch-up calculation to be performed, which is complex and prone to error. One of the primary defects uncovered in IRS audits of 403(b) plans is 15-year catch-up election failures.


Due to complexity, lack of historic data, general relaxing of contribution limits and IRS audit potential, a growing number of 403(b) plan sponsors avoid the calculation entirely by prohibiting the use of the 15-year catch-up election and only permitting the age-50 catch-up election. Generally, these plan sponsors permit existing elections to continue until limits have been exhausted but do not allow new 15-year catch-up elections.

It is likely premature to identify this trend as a permanent one, but it will be interesting to see whether the 15-year catch-up election becomes a “dinosaur” in the next five or 10 years, or beyond.

Michael A. Webb, AIF, CEBS, is vice president—retirement plan services at Cammack LaRhette Consulting, a provider of full service consulting in retirement, health care, employee benefits, actuarial and communications services.

© 2012, Cammack LaRhette Consulting. All rights reserved.

Republished with permission.


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