Benefits Plans - 457(b) Deferred Compensation Plan: Eligible Compensation

Eligible compensation defined

Not everything you receive in a paycheck can be put into the 457(b) plan. Compensation must meet federal requirements in order to be deferred. It must be earned compensation that is paid to you as a University of Michigan faculty or staff member for services performed, subject to federal income tax withholding through the University, and reported on a W-2 issued by the University.

Federal income tax withholding

Certain forms of compensation may be subject to federal income tax but cannot have withholding taken by the University. In these cases, you may not make a pre-tax contribution to the 457(b) plan because the University cannot provide a pre-tax benefit on compensation that is not subject to tax withholding. A fellowship is an example of compensation not subject to tax withholding through the University.

No after-tax payments; it must be taken pretax from your paycheck

Salary deferrals must be made as a pre-tax deduction from your paycheck. For example, you cannot write a check to the University of Michigan to have it sent to TIAA-CREF or Fidelity.

Visit the Payroll Office website for a complete list of the types of compensation that may be deferred. Compensation that may be contributed to the retirement plan may also be deferred into the 457(b). www.payroll.umich.edu/earn-code.xls

Eligible Compensation Ineligible Compensation

Examples of compensation that are eligible to be deferred under the University of Michigan 457(b) Plan include:

Examples of compensation and payments that are not eligible to be deferred under the University of Michigan 457(b) Plan include:

  • Base salary and wages;
  • Overtime;
  • Shift differential;
  • Administrative differential;
  • Incentive payments (Risk Pay) under the Medical Service Plan;
  • Longevity pay;
  • Summer salary for University-year appointees.
  • Fellowship, scholarship, and stipends;
  • Flex credits for opting out of benefit plans;
  • After-tax payments;
  • Allowances for housing, uniforms, and travel;
  • Royalty payments;
  • Long-term disability plan benefit payments;
  • Temporary employee earnings;
  • Worker’s Compensation.

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Limitations
The University of Michigan in its sole discretion may modify, amend, or terminate the benefits provided with respect to any individual receiving benefits, including active employees, retirees, and their dependents. Although the university has elected to provide these benefits this year, no individual has a vested right to any of the benefits provided. Nothing in these materials gives any individual the right to continued benefits beyond the time the university modifies, amends, or terminates the benefit. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the benefits programs and the university's right to modify, amend or terminate them.