3760 / What is the limit on elective deferrals to employer-sponsored plans?
Editor’s Note: Late deposits of participant deferrals are one of the most common errors made by employer plans. The Department of Labor (DOL) has announced plans to revise its Voluntary Fiduciary Correction (VFC) Program and prohibited transaction exemption (PTE) 2002-51. Under the proposal, employers would be allowed to self-correct certain late deposits of participant deferrals or loan repayments using the VFC Program. Under the new proposal, self-corrections would be permitted if (1) total lost earnings for the failure do not exceed $1,000 per correction, (2) delinquent contributions were remitted to the plan within 180 days after the date of withholding or receipt, (3) the lost earnings correction amount is computed using the DOL VFC Program calculator, using the actual date of withholding or receipt as the loss date, (4) the company completes an “SCC Retention Record Checklist,” prepares or collects certain documents, and provides the checklist and documentation to the plan administrator (to be treated as plan records for ERISA purposes), and (5) the company files an electronic notice with the DOL providing information about the correction.
The IRC limits the total amount of “elective deferrals” any individual can exclude from income in a year. Elective deferrals, for this purpose, generally include all salary deferral contributions to all 401(k) plans ( Q 3752 through Q 3779), 403(b) tax sheltered annuities ( Q 4047), SAR-SEPs ( Q 3705), and SIMPLE IRAs ( Q 3706).1 Contributions under a Roth 401(k) feature ( Q 3779) are subject to the same elective deferral limit as other 401(k) contributions.2
The elective deferral limit for traditional and safe harbor 401(k) plans and for Section 403(b) tax sheltered annuities is $23,500 in 2025 ($23,000 in 2024, $22,500 in 2023, $20,500 in 2022, $19,500 in 2020-2021, as indexed).3
Elective deferral contributions to SIMPLE IRAs ( Q 3706) and SIMPLE 401(k) plans ( Q 3778) are subject to a limit of $16,500 in 2025 ($16,000 in 2024, $15,500 in 2023, $14,000 in 2022, $13,500 in 2020-2021).4 The limit on elective deferrals to tax sheltered annuity plans may be further increased in the case of certain long term employees of certain organizations ( Q 4047).5