Maximum Contribution Limits Reminders for Deferred Compensation 457(b) Plans

Take action to verify compliance with 2016 maximum contribution limits for your plan participants before year’s end.

Annual contribution limits
Cooperatives sponsoring tax-exempt or governmental deferred compensation 457(b) plans for employees or for directors need to limit salary deferrals to $18,000 for 2016. The annual contribution limit to the 457(b) Plan includes an individual’s salary deferrals plus any employer contributions (if applicable).

Tip: Many payroll systems can be set up to cut off deferrals once this limit has been reached.

Special catch-up contributions
Employees and directors participating in a plan may be eligible for special catch-up contributions during each of the three years prior to, but not including, the year they reach normal retirement age. For employees, the normal retirement age would be the same as your co-op’s primary retirement plan. For directors, the normal retirement age is 65 for the purposes of special catch-up contributions.

Individuals can choose to defer the lesser of:

1. Twice the 2016 annual deferral limit (i.e., $36,000); or
2. The 2016 annual deferral limit plus the amount they were eligible to contribute in previous years but did not.

Tip: NRECA will calculate participant’s special catch-up contribution amounts upon request.

Age 50 and older catch-up contributions
Participants in deferred compensation 457(b) plans of government-owned utilities may choose to take advantage of the age 50 and older catch-up contribution option. The limit is $6,000 for 2016. Please note: This option is not allowed for 457(b) plans sponsored by tax-exempt cooperatives.

IMPORTANT: Participants who are eligible for both the special catch-up and age 50 and older contribution options may choose either one of the two options – not both.

Excess contributions
If excess deferrals, such as an age 50 and older contribution, have been made to your co-op’s 457(b) plan for 2016, they can be removed from the account before April 1, 2017, without penalty.

Not sure of your co-op tax status?
If your co-op files IRS Form 990, Return of Organization Exempt from Income Tax, your co-op is tax-exempt. Your accounting department can tell you if your co-op files this form.

Questions?
Please contact the Deferred Compensation Program team by email at deferredcomp@nreca.coop or by phone 703.907.6375.