Over the past several years, the University of California has taken a series of steps aimed at insuring that faculty and staff do not contribute more than the Internal Revenue Service allows to the 403(b) tax-deferred savings plan UC administers. Thus far, UC has merely provided information about how to calculate the 403(b) contribution limits and then let employees certify that they are within them, but this is about to change.
This year, UC Benefits is doing its own calculation of each employee's 403(b) limit, and next month all employees who were participating in the program in 1995 will receive a letter that sets forth their 1996 403(b) limits as Benefits has figured them. Should the Benefits-calculated limit be below that figured by the employee, then, unless Benefits and the employee can agree that the new calculation is in error, the employee's 1996 403(b) contributions will be halted when the newly calculated limit is reached. (This would mean an immediate halt to contributions if the limit has been reached prior to the time of the calculation). Thus, a faculty member who is contributing $791 a month on the basis of a $9,500 limit - but whose re-calculated limit is $8,000 - would be able to contribute very little in November and nothing at all in December of this year. In most such cases contributions could then begin again in 1997.
Judy Ackerhalt, director of retirement and investment planning for UC Benefits, says the action is being taken because "we thought that one way to insure compliance [with IRS regulations] was to do the calculation ourselves." The 403(b) plans offered by academic institutions have come under increasing scrutiny by the IRS, she says, and the University needs to do everything it can to make sure employees aren't violating IRS rules. The move is not intended to be punitive, she says; UC would face the possibility of IRS sanctions should a significant number of employees be found to be out of compliance.
Any employee will be able to challenge a calculation made by Benefits. Such employees will be able to use the Benefits automated telephone system ("At Your Service") to find out what data Benefits used in making its calculation, such as years of service, age, and salary. If the employee can document, in an initial review, discrepancies between actual data and the information used by Benefits, and the discrepancy the employee has found shows a limit difference of $100 or more, a recalculation will be performed by Benefits, after which it will make appropriate adjustments. Should the Benefits recalculation yield a lower limit, however, that limit will be adhered to.
Apart from challenging Benefits calculations on grounds of inaccurate data, employees will be able to use all the methodologies the IRS allows in figuring 403(b) limits; these are the so-called "alternative methodologies" that can be used once an employee's "general limit" has been established. The latter is generally the lesser of $9,500, 20 percent of adjusted gross salary, or the "maximum exclusion allowance" authorized by the IRS.