Under IRC s. 415©(4), University (and certain other) employees may elect one of three alternative limits in place of the general limit for 403(B) plans. The third of these allows the employee to bypass the MEA limit and just use the 415© limit of 25% of compensation (or $30,000, but in voluntary plans that amount is often irrelevant due to the $10,000 elective deferral limit). All plans of the employer must be aggregated under this alternative limit: if the employee also has a defined benefit plan there is a complex calculation to determine the "defined benefit fraction" and "defined contribution fraction." The calculation is described in s. 415(e), which is to be repealed effective 12/31/99.

Does anyone know how the alternative limit in s. 415©(4)© will work after this repeal? Consider two scenarios: the employer maintains a defined contribution plan plus a voluntary 403(B) plan; or, the employer maintains a defined benefit plan plus a voluntary 403(B) plan.

My read on it is that the defined benefit plan will no longer need to be aggregated with the 403(B) plan because of the repeal of 415(e). However, I believe that the defined contribution plan will still need to be aggregated with the 403(B) plan. Hence, with the DB plan & the 403(B) plan, Option C would permit a "full" 25% of adjusted compensation and with the DC/403(B) plan, there would only be one 415 limt. How do others read this?

Look at Treas Reg section 1.415-8, and paragraph (d) in particular.

Is this still the general interpretation, or has anything changed? Isn't the © election almost a no-brainer, unless of course the participant wants to use the (A) or (B) election in the future.

Just to clarify, for an employee covered by a 403(B) and a DB, isn't the DB effectively ignored effective 1/1/2000 under the © election, but ONLY under the © election, because it would only be included in the MEA (which is bypassed under the © election), or am I missing something?

Comments please.

The one circumstance in which the C election isn't a "no-brainer," other than having elected the A or B election in the past or wanting to hold open the possibility of doing so in the future, is if there are annual additions to a qualified plan of the employer. This could occur in one of two situations: if the employer has a qualified defined contribution plan, or if the employer has a qualified defined benefit plan which includes after-tax employee contributions. In that situation, the 403(B) contributions must be combined with the annual additions to the qualified plans if and only if a C election has been made.

Good point, Carol. Thanks for the feedback.