Industry News

On June 5, 2020, the Internal Revenue Service (IRS) issued its snapshot, Catch-Up Contributions Under Section 457(b) Plan of Governmental and Tax-Exempt Employers.  The snapshot discusses catch-up contributions under an Internal Revenue Code (IRC) Section 457(b) plan.  The annual deferrals that participants make to a Section 457(b) plan are limited by the basic annual limitation unless a catch-up provision applies, in which case they are higher.  Section 457(b) plans may permit special 457 catch-up contributions during the last three taxable years before a participant’s normal retirement age. 

In addition, governmental 457(b) plans may permit age 50 catch-up contributions.  Governmental 457(b) plans may allow participants who are age 50 or older during the tax year to make deferrals in excess of the basic annual limitation under IRC Sections 457(e)(18) and 414(v).  The catch-up contributions for 457(b) eligible deferred compensation plans are the same as catch-up contributions for other plans.  The additional deferral amount is limited to the lesser of:

• the IRC Section 414(v) applicable dollar amount, which is $6,500 in 2020; or
• 100% of the participant’s compensation (when added to the other deferrals for the year). While IRC § 414(v)(1) refers to additional “elective deferrals,” IRC §§ 414(v)(6)(B) and 414(u)(2)(C) clarify that “elective deferral” includes any deferral of compensation under an eligible deferred compensation plan as defined in IRC § 457(b).

A participant of a governmental 457(b) plan may not use both the age 50 catch-up and the special 457 catch-up in the same year.

The snapshot is available here.