New Jersey Administrative Code
Title 17 - TREASURY - GENERAL
Chapter 7 - ALTERNATE BENEFIT PROGRAM
Subchapter 12 - NEW JERSEY ADDITIONAL CONTRIBUTIONS TAX-SHELTERED PROGRAM (ACTS)
Section 17:7-12.10 - Limitations on annual additions

Universal Citation: NJ Admin Code 17:7-12.10

Current through Register Vol. 55, No. 48, December 18, 2023

(a) A participant cannot receive an allocation for a limitation year greater than the maximum annual addition as set forth in this section.

(b) If annual additions are credited to a participant under any IRC § 403(b) plans of the employer in addition to ACTS for a limitation year, the sum of the participant's annual additions for the limitation year under the ACTS, and such other IRC § 403(b) plans may not exceed the maximum annual addition as set forth in this section.

(c) If a participant is in control of any employer for a limitation year, the sum of the participant's annual additions for the limitation year under the ACTS, any other IRC § 403(b) plans of the employer, any defined contribution plans maintained by controlled employers, and any section 403(b) plans of any other employers may not exceed the maximum annual addition as set forth in this section. For purposes of this subsection, a participant is in the control of an employer as set forth in IRC §§ 414(b) and (c) and 415(h); and a defined contribution plan means a defined contribution plan that is qualified under IRC § 401(a) or 403(a), an IRC § 403(b) plan, or a simplified employee pension within the meaning of IRC § 408(k). The Plan Administrator will provide written or electronic notice to participants that explains the limitation in this subsection in a manner calculated to be understood by the average participant and informs participants of their responsibility to provide information to the Plan Administrator that is necessary to satisfy this subsection. The notice will advise participants that the application of the limitations in this subsection will take into account information supplied by the participant and that failure to provide necessary and correct information to the Plan Administrator could result in adverse tax consequences to the participant, including the inability to exclude contributions to the ACTS under IRC § 403(b). The notice will be provided annually, beginning no later than the year in which the employee becomes a participant.

(d) The annual additions that may be credited to a participant under the ACTS for any limitation year will not exceed the maximum annual addition under this section, reduced by the annual additions credited to the participant under any other IRC § 403(b) Prototype Plans of the employer in addition to the ACTS and, if the participant is in control of an employer, any defined contribution plans maintained by controlled employers and IRC § 403(b) plans of any other employers. Contributions to the participant's accounts under the ACTS will be reduced to the extent necessary to prevent this limitation from being exceeded.

(e) If, notwithstanding (a), (b), (c), and (d) above, a participant's annual additions under the ACTS, or under the ACTS and plans aggregated with the ACTS under (a) and (b) above, result in an excess annual addition for a limitation year:

1. The excess annual addition will be deemed to consist of the annual additions last credited, except annual additions to a defined contribution plan qualified under IRC § 401 (a) or a simplified employee pension maintained by an employer controlled by the participant will be deemed to have been credited first;

2. If an excess annual addition is credited to a participant under the ACTS and another IRC § 403(b) plan of the employer on the same date, the excess annual addition attributable to the ACTS will be the product of:
i. The total excess annual addition credited as of such date; times

ii. The ratio of the annual additions credited to the participant for the limitation year as of such date under the ACTS to the total annual additions credited to the participant for the limitation year as of such date under this and all other IRC § 403(b) plans of the employer; and

3. Any excess annual addition attributable to the ACTS will be corrected in the manner described in (g) below.

(f) If annual additions are credited to the participant for the limitation year under another IRC § 403(b) plan of the employer that is not a 403(b) Prototype Plan, the annual additions that may be credited to the participant under the ACTS for the limitation year shall be limited in accordance with (d) and (e) above as though the other plan were a 403(b) Prototype Plan.

(g) A participant's excess annual additions for a taxable year are includible in the participant's gross income for that taxable year. A participant's excess annual additions attributable to the ACTS will be credited in the year of the excess to a separate account under the plan for such excess annual additions which will be maintained by the pension provider until the excess annual additions are distributed. This separate account will be treated as a separate contract to which IRC § 403(c) (or another applicable provision of the IRC) applies. Amounts in the separate account may be distributed at any time, notwithstanding any other provisions of applicable law.

(h) The following definitions apply to this section only.

"Annual additions" means the following amounts credited to a participant under the ACTS or any other plan aggregated with the ACTS under (b) and (c) above:

1. Employer contributions, including elective deferrals (other than age 50 catch-up contributions described in IRC § 414(v) and contributions that have been distributed to the participant as excess elective deferrals under N.J.A.C. 17:7- 12.7(e));

2. After-tax employee contributions;

3. Forfeitures allocated to the participant's account;

4. Amounts allocated to an individual medical account, as defined in IRC § 415(l)(2) , which is part of a pension or annuity plan, and amounts derived from contributions paid or accrued that are attributable to post-retirement medical benefits, allocated to the separate account of a key employee, as defined in IRC § 419 A(d)(3), under a welfare benefit fund, as defined in IRC § 419(e); and

5. Allocations under a simplified employee pension.

Amounts described in paragraphs 1, 2, 3, and 4 above are annual additions for purposes of both the dollar limitation under this subsection and the percentage of compensation limitation under this subsection. Amounts described in paragraph 5 above are annual additions solely for purposes of the dollar limitation under this subsection.

"Employer" means, solely for purposes of this subsection, the employer that has adopted the ACTS and any employer required to be aggregated with that employer under IRC § 414(b) and (c) (each as modified by IRC § 415(h)), (m), (o), and Treasury Reg. § 1.414(c)(5).

"Excess annual addition" means the annual additions credited to the participant for the limitation year under the ACTS and plans aggregated with the ACTS under (b), (c), and (d) above over the maximum annual addition for the limitation year under this subsection

"Includible compensation" means an employee's actual wages in Box 1 of Form W-2 for a calendar year for services to the employer, but subject to a maximum of $ 200,000 (or such higher maximum as may apply under IRC § 401(a)(17)(B)) and increased (up to the dollar maximum) by any compensation reduction election under IRC §§ 125, 132(f), 401(k), 403(b), or 457(b) (including any elective deferral under the ACTS). The amount of includible compensation is determined without regard to any community property laws. Includible compensation includes any compensation described in paragraphs 1 or 2 below paid after an employee's severance from employment, provided it is paid by the later of two and one-half months after the employee's severance from employment or the end of the calendar year in which the employee has a severance from employment:

1. Any payment that would have been paid to the employee prior to a severance from employment if the employee had continued in employment with the employer and that otherwise satisfies this definition of includible compensation; and

2. A payment for unused accrued bona fide sick leave (if the employee qualifies for such payment under the employer's criteria), vacation, or other leave, but only if the employee would have been able to use the leave if employment had continued and the payment would be includible compensation if paid prior to the employee's severance from employment.

Any payment that is not described in paragraph 1 or 2 above is not considered includible compensation if paid after severance from employment, even if it is paid within two and one-half months following severance from employment. Thus, for example, includible compensation does not include amounts paid after severance from employment that are severance pay or unfunded nonqualified deferred compensation.

Includible compensation also includes payments to an individual who does not currently perform services for the employer by reason of qualified military service (as that term is used in IRC § 414(u)(1)) to the extent those payments do not exceed the amounts the individual would have received if the individual had continued to perform services for the employer rather than entering qualified military service.

Includible compensation also includes "differential wage payments," as that term is described in N.J.A.C. 17:7-11.22.

For purposes of applying the limitations on annual additions to non-elective employer contributions pursuant to IRC § 415, includible compensation for a participant who is permanently and totally disabled (as defined in IRC § 22(e) (3)) is the includible compensation such participant would have received for the limitation year if the participant had been paid at the rate of compensation paid immediately before becoming permanently and totally disabled.

"Limitation year" means the calendar year. However, if the participant is in control of an employer pursuant to (c) above, the limitation year shall be the limitation year in the defined contribution plan controlled by the participant.

"Maximum annual additions" means, except for age 50 catch-up elective deferrals described in IRC § 414(v) and allowed under N.J.A.C. 17:7-12.7(b), the annual addition that may be contributed or allocated to a participant's account under the ACTS for any limitation year, which shall not exceed the lesser of:

1. Fifty one thousand dollars, as adjusted for increases in the cost-of-living under IRC § 415(d) for periods after 2013; or

2. One hundred percent of the participant's includible compensation for the limitation year.

The includible compensation limit referred to above shall not apply to any contribution for medical benefits after separation from service (within the meaning of IRC § 401(h) or IRC § 419A(f)(2)) that is otherwise treated as an annual addition.

Adopted by 50 N.J.R. 1616(a), effective 7/16/2018

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