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

Take action to verify compliance with 2020 maximum contribution limits for your 457(b) Plan participants before year’s end.

Annual contribution limits
Cooperatives sponsoring tax-exempt or governmental deferred compensation 457(b) plans for employees or directors need to limit salary deferrals to $19,500 for 2020. The annual contribution limit to the 457(b) plan includes an individual’s salary deferrals plus any employer contributions (if applicable). If an individual participates in one or more 457(b) plans—as an employee or a director—their combined total deferrals for 2020 cannot exceed $19,500.

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

Special catch-up contributions
In addition to the annual contribution limit, 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 is typically 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. Check your plan document to verify.

Assuming the employee or director has not contributed the maximum annual amount in prior years, plan participants can choose to defer the lesser of:

1. Twice the 2020 annual deferral limit (i.e., $39,000); or
2. The 2020 annual deferral limit plus the amount they were eligible to contribute in previous years but did not.

Tip: The NRECA Deferred Compensation team is happy to assist in determining catch-up eligibility and potential catch-up amount upon request.

Age 50 and older catch-up contributions for plans sponsored by government-owned utilities
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 $6,500 for 2020. Plan participants may also be eligible for the special catch-up option. However, eligible participants may choose either one of the two options—not both—in the same year.

IMPORTANT: Age 50 and older catch-up contributions are not allowed for 457(b) plans sponsored by tax-exempt cooperatives that are not government-owned utilities.

Excess contributions
If excess deferrals have been made to your co-op’s 457(b) Plan for 2020, they can be removed from the account before April 1, 2021, without penalty.

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