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Publication 571
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4. Limit on Elective DeferralsThe second, and final, component of MAC is the limit on elective deferrals. This is a limit on the amount of contributions that can be made to your account through a salary reduction agreement. A salary reduction agreement is an agreement between you and your employer allowing for a portion of your compensation to be directly invested in a 403(b) account on your behalf. You can enter into more than one salary reduction agreement during a year.
403(b) plan and another retirement plan. If, during the year, contributions in the form of elective deferrals are made to other retirement plans on your behalf, you must combine all of the elective deferrals to determine if they are more than your limit on elective deferrals. The limit on elective deferrals applies to amounts contributed to:
Excess elective deferrals. If the amount contributed is more than the allowable limit, you must include the excess in your gross income for the year contributed. This is explained in chapter 7. General LimitUnder the general limit on elective deferrals, the most that can be contributed to your 403(b) account through a salary reduction agreement for 2002 is $11,000. The limit for 2003 is $12,000. This limit applies without regard to community property laws. 15-Year RuleIf you have at least 15 years of service with a public school system, hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization), the limit on elective deferrals to your 403(b) account is increased by the least of:
If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $14,000 for 2002 and $15,000 for 2003. To determine whether you have 15 years of service with your employer, see Years of Service, next. Years of ServiceTo determine if you are eligible for the increased limit on elective deferrals you will first need to figure your years of service . How you figure your years of service depends on whether you were a full-time or a part-time employee, whether you worked for the full year or only part of the year, and whether you have worked for your employer for an entire year. You must figure years of service for each year during which you worked for the employer who is maintaining your 403(b) account. If more than one employer maintains a 403(b) account for you in the same year, you must figure years of service separately for each employer. DefinitionYour years of service are the total number of years you have worked for the employer maintaining your 403(b) account as of the end of the year. Figuring Your Years of ServiceTake the following rules into account when figuring your years of service. Status of employer. Your years of service include only periods during which your employer was a qualified employer. Your plan administrator can tell you whether or not your employer was qualified during all your periods of service. Service with one employer. Generally, you cannot count service for any employer other than the one who maintains your 403(b) account. Church employee. If you are a church employee, treat all of your years of service with related church organizations as years of service with the same employer. For more information about church employees, see chapter 5. Self-employed ministers. If you are a self-employed minister, your years of service include full and part years in which you have been treated as employed by a tax-exempt organization that is a qualified employer. Less than one year of total service. Your years of service cannot be less than one year. If at the end of your tax year, you have less than one year of service (including service in any previous years), figure your limit on annual additions as if you have one year. Total years of service. When figuring years of service, figure each year individually and then add the individual years of service to determine your total years of service, ending with the year for which the limit on annual additions is being calculated. The total years of service will be used when figuring your limit on annual additions. Example. The annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. Marsha began working with ABC schools in September 1998. She has always worked full time for each annual work period. At the end of 2002, Marsha had 4.5 years of service with ABC Public Schools, as shown in Table 4-1.
Full time or part time. To figure your years of service, you must analyze each year individually and determine whether you worked full time for the full year or something other than full time. When determining whether you worked full time or something other than full time, you use your employer's annual work period as the standard. Employer's annual work period. Your employer's annual work period is the usual amount of time an individual working full time in a specific position is required to work. Generally, this period of time is expressed in days, weeks, months, or semesters and can span two calendar years. Example. All full-time teachers at ABC Public Schools are required to work both the September through December semester and the February through May semester. Therefore, the annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. Teachers at ABC Public Schools who work both semesters in the same calendar year are considered working a full year of service in that calendar year. Full-Time Employee for the Full YearCount each full year during which you were employed full time as one year of service. In determining whether you were employed full time, compare the amount of work you were required to perform with the amount of work normally required of others who held the same position with the same employer and who generally received most of their pay from the position. How to compare. You can use any method that reasonably and accurately reflects the amount of work required. For example, if you are a teacher, you can use the number of hours of classroom instruction as a measure of the amount of work required. In determining whether positions with the same employer are the same, consider all of the facts and circumstances concerning the positions, including the work performed, the methods by which pay is determined, and the descriptions (or titles) of the positions. Example. An assistant professor employed in the English department of a university will be considered a full-time employee if the amount of work that he or she is required to perform is the same as the amount of work normally required of assistant professors of English at that university who get most of their pay from that position. If no one else works for your employer in the same position, compare your work with the work normally required of others who held the same position with similar employers or similar positions with your employer. Full year of service. A full year of service for a particular position means the usual annual work period of anyone employed full time in that general type of work at that place of employment. Example. If a doctor works for a hospital 12 months of a year except for a one-month vacation, the doctor will be considered as employed for a full year if the other doctors at that hospital also work 11 months of the year with a one-month vacation. Similarly, if the usual annual work period at a university consists of the fall and spring semesters, an instructor at that university who teaches these semesters will be considered as working a full year. Other Than Full Time for the
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| Number of months Jason worked | = | 4 | = | 1 |
| Number of months in annual work period | 8 | 2 |
Part time for the full year. If, during a year, you were employed part time for the employer's entire annual work period, you figure the fraction for that year as follows.
Example. Vance teaches one course at a local medical school. He teaches 3 hours per week for two semesters. Other faculty members at the same school teach 9 hours per week for two semesters. The annual work period of the medical school is two semesters. An instructor teaching 9 hours a week for two semesters is considered a full-time employee. Given these facts, Vance has worked part time for a full annual work period. Vance has completed 1/ of a year of service, figured as shown below.
| Number of hours per week Vance worked | = | 3 | = | 1 |
| Number of hours per week considered full time | 9 | 3 |
Part time for part of the year. If, during any year, you were employed part time for only part of your employer's annual work period, you figure your fraction for that year by multiplying two fractions.
Figure the first fraction as though you had worked full time for part of the annual work period. The fraction is as follows.
Figure the second fraction as though you had worked part time for the entire annual work period. The fraction is as follows.
Once you have figured these two fractions, multiply them together to determine the fraction representing your partial year of service for the year.
Example. Maria, an attorney, teaches a course for one semester at a law school. She teaches 3 hours per week. The annual work period for teachers at the school is two semesters. All full-time instructors at the school are required to teach 12 hours per week. Based on these facts, Maria is employed part time for part of the annual work period. Her year of service for this year is determined by multiplying two fractions. Her computation is as follows.
| Number of semesters Maria worked | = | 1 |
| Number of semesters in annual work period | 2 |
| Number of hours Maria worked per week | = | 3 | = | 1 |
| Number of hours per week considered full time | 12 | 4 |
Maria would multiply these fractions to obtain the fractional year of service:
| 1 | x | 1 | = | 1 | ||||
| 2 | 4 | 8 |
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More
than one 403(b) account. If, for any year, elective deferrals are contributed to
more than one 403(b) account for you (whether or not with the same employer), you must
combine all the elective deferrals to determine whether the total is more than the limit
for that year.