Payroll
Ronald L Moser, payroll / benefits consultant at Taxing Matters, explains the intricacies of government / public sector retirement plans, and what payroll professionals need to be aware of, also providing updates relevant to the year 2023 *
W e’re all familiar with the 401 (k) plan in the private sector. But for those in the public sector, there are two additional retirement benefit plans: 403 (b) and 457 (b) plans. While they are similar in certain ways to 401(k) plans, there are some differences. Eligible employers For 457 (b) retirement plans, eligible employers include: ● state and local governments ● rural electric cooperatives ● independent contractors of eligible organisations ● employees of tax-exempt organisations. Churches and qualified church- controlled organisations, while tax exempt, cannot sponsor 457 (b) plans. For 403 (b) plans, organisations that operate for religious, charitable, scientific, testing for public safety, literary or educational purposes can offer tax-sheltered annuities. State and local government employers that provide educational services are the largest group eligible for 403 (b) plans. 2023 contribution limits For both 457 (b) and 403 (b) plans, contribution limits are 100% of includible compensation up to $22,500. For 403 (b) programs, the 415 (c) limit applies when employer contributions are part of the plan, with a limit of up to $66,000. 2023 catch-up The age 50 catch-up is provided to both 457 (b) and 403 (b) retirement plans. The
Roth contributions Both 457 (b) and 403 (b) retirement plans allow Roth individual retirement account contributions. The contribution limits discussed earlier also apply to Roth contributions. An employee may designate contributions to a Roth 457 (b) or 403 (b) and traditional pre-tax 457 (b) or 403 (b). You must aggregate the total of both contributions and not exceed the $22,500 limit. As payroll professionals, it’s our job to be aware of the additional retirement benefit plans for those working in the public sector. n The APA, http://ow.ly/1o0a50MVhAX, is the nation’s leader in payroll education, publications, and training. This nonprofit association conducts more than 300 payroll training conferences and seminars across the country each year and publishes a complete library of resource texts and newsletters. Representing more than 20,000 members, the APA is the industry’s highly respected and collective voice in Washington, D.C. Get more information at http://ow.ly/1o0a50MVhAX. The Global Payroll Management Institute (GPMI), http://ow.ly/eQHq50MVhwt, spearheads the APA’s global initiatives to provide the world with a leading community of payroll leaders, managers, practitioners, researchers and technology experts. Subscribers connect with each other through networking discussions, collaborative opportunities and access to education and publications dedicated to global payroll strategies, knowledge, research, employment and training. GPMI also publishes several global payroll texts and white papers as a benefit to subscribers. Get more information at http://ow.ly/ eQHq50MVhwt.
2023 limit is $7,500. Non-governmental 457 (b) plans are not eligible for the age 50 catch-up. However, 403 (b) plans have an additional catch-up that allows those with 15 years of service with one employer to catch-up on unused contributions from the prior 15 years. For example, an employee elects to contribute $10,000 in 2022. The maximum contribution was $20,500, so the unused amount is $10,500. The employee can contribute an extra $6,500 in 2022 and $7,500 this year of the total unused amount, not to exceed a maximum of $30,000. The 457 (b) retirement plans also have an additional ‘final three-year catch-up’. This permits an employee to defer any unused amount in the last three calendar years ending before the employee attains the plan’s normal retirement age. The catch-up amount is limited to two times the basic annual limit (for 2023, two times $22,500). You cannot do the age 50 catch-up also; you must use the catch-up that provides the higher contribution limit. Discrimination testing Unlike 401 (k) plans, 457 (b) plans can be provided in a discriminatory manner. Regulations require 403 (b) retirement plans to comply with the nondiscrimination requirement for matching contributions in the same manner as a qualified plan. All employees of the eligible employer must be permitted to elect to have elective deferrals contributed on their behalf if any employee of the eligible employer may elect to have the organisation make 403 (b) elective deferrals.
“We’re all familiar with the 401 (k) plan in the private sector. But for those in the public sector, there are two additional retirement benefit plans: 403 (b) and 457 (b) plans. While they are similar in certain ways to 401 (k) plans, there are some differences”
*This article relates to US payroll practices.
25
| Professional in Payroll, Pensions and Reward |
Issue 88 | March 2023
Made with FlippingBook - Online magazine maker