How will gain sharing affect my 403(b) plan?
It depends on what elections you have made, if any. 403(b) plans are generally subject to the lesser of three different limits – an elective deferral limit, an annual additions limit, and a maximum exclusion allowance (MEA). However, if you are employed by certain qualified employers (such as school districts, hospitals, etc.) you may irrevocably elect one of three alternative limits provided by section 415(c)(4)(A), (B) and (C) of the Internal Revenue Code. One of those alternatives, commonly known as the “C” election (corresponding to subsection (C) of section 415(c)(4)) or the “overall limit”, permits the 403(b) participant to disregard the MEA. However, in exchange for disregarding the MEA, the participant must include all employer contributions to all qualified plans together with all 403(b) contributions when applying the annual additions test. This means that gain sharing will be included in the 403(b) annual additions test only when a “C” election is effective.
