Benefits Plans - Retirement Savings Plans: IRC 415(c) Limit
What It Is
Section 415(c) of the Internal Revenue Code places a ceiling on total contributions that may be made to a defined contribution retirement plan by capping them at the lesser of 100% of an employee’s compensation or $53,000 for 2015. This value is periodically indexed by the IRS. Under a 403(b) plan, it applies to employer contributions (whether vested or not), forfeitures reallocated to employee accounts, and all after-tax and tax-deferred employee contributions. Employee contributions made under the Age 50 catch-up are not included when calculating this limit.
IRC 415(c) and the U-M Plan
The IRC 415(c) limit applies to 403(b) elective deferrals you make to the U-M Basic Retirement and SRA plans. This consists of:
- Your contribution (5% or 4.5% depending on eligibility) to the Basic Retirement Plan on all eligible salary if you are a voluntary participant in the plan.
- Your contribution (5% or 4.5% depending on eligibility) to the Basic Retirement Plan on eligible salary up to the FICA wage base ($118,500 in 2015) if you are a compulsory participant in the plan (you are age 35 or older, work a 100% appointment, and have two years of eligible service).
- Any contributions you make to the 403(b) SRA (supplemental retirement account), including both traditional pre-tax and designated Roth after-tax amounts.
Since the U-M contribution is made as a 401(a) contribution, it is not included with the 403(b) contributions listed above when calculating the 415(c) limit. In addition, contributions to a 457(b) plan are not included when calculating the limit. The potential to exceed 415(c) exists when you participate through certain other types of retirement plans and also contribute to the U-M plans.
When 415(c) Will Affect You
This limit affects you if you make 403(b) elective deferrals to the U-M Retirement Plan and any of the following applies to you:
- Contributions are made for you to a SEP-IRA, 401(a) plan (including a 401(k) plan), or 403(a) plan sponsored by a corporation, partnership, or sole proprietorship in which you have more than a 50% ownership interest.
- You contribute to a 401(a) or 403(a) Keogh plan with respect to self-employment income from a trade or business in which you have a more than 50% ownership interest. (This would include a Keogh plan established with respect to fees for a non-employee member of a board of directors, because the director is considered a self-employed individual with respect to the directorship.)
- You participate with another 403(b) plan outside of the University of Michigan 403(b) plan.
NOTE: Section 415(c) requires that contributions to all 403(b) plans through which you participate must be taken into consideration when calculating the limit. This includes employer contributions (whether vested or not), forfeitures reallocated to employee accounts, and after-tax and tax-deferred employee contributions. Also, 403(b) nonelective contributions and 403(b) contributions made pursuant to a one-time irrevocable election are subject to the 415(c) limit.
Example #1: Physician with Private Practice
Lisa is a physician who works for the University of Michigan and contributes to the U-M Retirement Plan. Lisa also is the sole owner of a private practice. If she is making contributions to a qualified retirement plan through her private practice, she needs to report information on those contributions to the U-M Benefits Office. The Benefits Office will then calculate the contributions being made through both plans to ensure the Section 415(c) limit is not exceeded.
Example #2: New Hire Employee
Marie begins working for U-M in September 2015. From January through August of 2015 she worked at a college that provided $30,000 in employer 403(b) contributions. She also made $10,000 in 403(b) contributions to that plan. Marie must aggregate the total $40,000 in 403(b) contributions made through her previous employer, with her 403(b) contributions made to the U-M Retirement Plan, to stay under the $53,000 limit. Marie needs to contact the U-M Benefits Office with the information on those contributions in order to ensure the Section 415(c) limit is not exceeded between both employers.
Your Responsibility Under 415(c)
Under IRS regulations, individuals must report to their employer data regarding contributions made to a SEP-IRA or qualified retirement plan they are deemed to control. If you meet these criteria, call the SSC Contact Center immediately at 734-615-2000.
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.