403(b) Plan Fix-It Guide - An employee making a 15-years of service catch-up contribution doesn’t have the required 15 years of full-time service with the same employer

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6) For plans that offer “15-years of service catch-up” contributions, an employee making these contributions doesn’t have the required 15 years of full-time service with the same employer. Review total deferrals for each participant. If over the basic 402(g) limit, determine if it’s because of a catch-up. If it’s a 15-year catch-up, determine if the employer employed the employee for 15 years. Determine the level of the participant’s 15-year catch-up. Refund excess deferrals plus earnings. Report corrections on Form 1099-R.

Verify employees are eligible for the catch-up by ensuring that they have 15-years of service with the 403(b) plan sponsor, have unused amounts available for catch-up and have not exceeded the $15,000 lifetime limit. Before allowing participants to make 15-years of service catch-up contributions, ensure that the written program contains the proper language.

To qualify for the 15-years of service catch-up (if the employer’s plan includes this provision) the employee must have 15 years of service with the same eligible 403(b) employer. The limit on elective deferrals to the participant’s 403(b) account may be increased by up to $3,000 in any taxable year (lifetime employer-by-employer limit of $15,000) if the employee has at least 15 years of service with the same employer in a:

  • public school system,
  • hospital,
  • home health service agency,
  • health and welfare service agency,
  • church, or
  • convention or association of churches.

There are several calculations to determine a participant’s eligibility to make up to a $3,000 catch-up contribution.

  • The amount of the special 15-year catch-up and the underused amount is equal to the lesser of:
    • $3,000;
    • $15,000 reduced by the sum of prior years’ 15-year catch-up deferrals; or
    • $5,000 x years of service with the employer, minus the total of all elective deferrals made to a 403(b), 401(k), SARSEP or SIMPLE IRA plan maintained by the employer, including the 15-year catch-up, but excluding the age 50 catch-up.
  • The ordering for participants eligible for both types of catch-up contributions is:
    • 15-year catch-up, then
    • age 50 catch-up.

If a participant uses an age 50 catch-up, but was eligible for the 15-year catch-up, the rules first count the contribution toward the 15-year catch-up lifetime maximum.

  • A participant eligible for both types of catch-ups may contribute up to $3,000 extra for the 15-year catch-up, along with an extra $7,500 for the age 50 catch-up in 2023 ($6,500 in 2020, 2021 and 2022; and $6,000 in 2015, 2016, 2017, 2018 and 2019). The age 50 catch-up limit is subject to cost-of-living adjustments in later years.
  • Designated Roth contributions in a 403(b) plan are included within all the different limits.

Making a determination that the years of service are with the same employer has its own complications. A few examples of the rules are:

  • If an employee works for the same public school district, but at different schools within that system, the rules consider the employee to be employed by the same employer.
  • If an employee works for a hospital system, but works at different hospitals within that system, the rules consider the employee to be employed by the same employer.
  • If a minister is a self-employed minister, the rules consider all those years of service as a self-employed minister as working for the same employer.

It’s also necessary to determine the years of service for any participant interested in making the additional 15-year catch-up contribution. How years of service are determined depends on whether the employee was full-time or part-time, whether the employee worked a full year or only a partial year and if the employee performed work for the employer for an entire year.

Full-time may be different for each position and for each employer, and involves the employer’s annual work period, which is the usual amount of time an individual working full-time in a specific position is required to work. This period may be expressed in days, weeks, months or semesters and can span more than one calendar year.

This calculation may get complicated. An employer planning to use the 15-year catch-up should review Pub 571 for a more detailed look at this calculation. This also may be an area to ask for the input of a benefits professional.

How to find the mistake

First, verify that the employer is eligible to provide this catch-up benefit. Catch-up benefits must be authorized by the written 403(b) plan terms. Then, at the end of each year, make a list of plan participants and their total deferrals. Remember that the 15-year catch-up increases the 402(g) limit for those years and to those participants to which it applies. Accordingly, for each participant with deferrals over the basic 402(g) limit, determine if the amount is because of a proper 15-year catch-up or age 50 catch-up. For each employee using the 15-year catch-up, check his or her hire date and determine if the employer has employed the employee for 15 years. The time doesn’t need to be consecutive. If that is satisfactory, determine the level of 15-year catch-up that’s available to the employee. You’ll need records of all employee deferrals ever made to all 403(b), 401(k), SARSEP or SIMPLE plans sponsored by the employer. If the total of those deferrals is less than $5,000 x years of service, the employee may be eligible to contribute the difference (limited to $15,000), up to $3,000 per year.

How to fix the mistake

Corrective action:

If the result of a failure to properly determine the 15-year catch-up is exceeding the 402(g) limits, first see if the age 50 catch-up is available under the plan and to the employee (see Mistake #7). If the amount over the basic 402(g) limit is the result of a properly applied age 50 catch-up, there may be no failure. However, if the age 50 catch-up is either not available, or doesn’t account entirely for the deferrals over the 402(g) limit (or the 402(g) limit adjusted for a 15-year catch-up), the plan must refund any deferrals in excess of the 402(g) limit, plus earnings to the employee. In addition to making the corrective distributions, the plan sponsor should determine what lapse in plan administration led to the mistake.

  • Who was in charge of determining if an employee was eligible for the catch-up?
  • Did they have the proper training?
  • Did the employer or vendors determine if an employee was eligible for the catch-up?
  • What oversight did the employer supply in making these determinations?

The plan sponsor should remedy any voids in its practices and procedures. These mistakes are correctible under SCP, VCP or Audit CAP by distributing the excess deferral to the employee and reporting the amount as taxable to the employee. The timing of the return of the excess to the employee determines how and when that refund is taxed. For a discussion of these rules, see Mistake #5.


Nader Public School District (NPSD) sponsors a 403(b) plan that includes the 15-year catch-up contribution provision for its employees. At the end of 2019, 125 current and former employees were plan participants and the plan had assets of $3,234,115. NPSD counts all years of service as a public school teacher toward the 15 years of service catch-up. In 2019, Paul, a 48-year-old teacher, deferred $19,000 (402(g) limit for 2019), plus $3,000 of his 15-year catch-up. Paul only had 5 years of service with NPSD and was not eligible for the 15-year catch-up.

Correction programs available

Self-Correction Program:

If NPSD determines this mistake is correctible under SCP, it should distribute the 402(g) excess of $3,000, adjusted for earnings, to Paul and correct any faulty administrative procedures.

  • If excess contributions, plus earnings, were returned on or before April 15, 2020:
    • The excess deferral is taxable in the calendar year contributed, 2019.
    • Earnings through the date of correction are taxable in the year they are distributed (2020).
    • There is no 10% additional early distribution tax, no 20% income tax withholding requirement and no spousal consent requirement.
  • If excess contributions, plus earnings, were returned on Oct. 1, 2020 (after April 15, 2020):
    • Excess deferrals are taxed both in the year contributed (2019) and in the year distributed (2020).
    • Earnings on excess deferrals are taxed in the year distributed (2020).
    • These late distributions are subject to the 10% early distribution tax, 20% income tax withholding requirement and spousal consent requirements.

Voluntary Correction Program:

NPSD may also correct the mistake using VCP if neither they nor the plan are under audit. Correction is the same as under SCP. NPSD must distribute the amount in excess of 402(g), $3,000 (adjusted for earnings) to Paul. NPSD makes a submission according to Revenue Procedure 2021-30PDF via the Pay.gov website following the procedures in Section 11.

NPSD can use the IRS’s model documents, Form 14568, Model VCP Compliance StatementPDF and Form 14568-G, Model VCP Compliance Statement - Schedule 7: Failure to Distribute Elective Deferrals in Excess of the 402(g) LimitPDF. User fees for VCP submissions are generally based upon the current value of all assets that are associated with the Plan. In this case, the 403(b)’s assets exceed $500,000 but are less than ten million dollars. Therefore, the user fee is $3,000 if the submission is made in 2021. User fees may change in subsequent years.

Audit Closing Agreement Program:

Correction under Audit CAP is the same as under SCP and VCP; distribute the excess plus earnings, and correct faulty administrative procedures. NPSD and the IRS enter into a closing agreement outlining the corrective action and negotiate a sanction that is not excessive, considers facts and circumstances; bear a reasonable relationship to the nature, extent and severity of the failures, based upon all relevant factors described in section 14 of Rev. Proc. 2021-30.

How to avoid the mistake

A basic understanding of how the 15-year catch-up works is your first step. Keep records and take responsibility for making the determination that employees are eligible for the catch-up by verifying they have 15 years of service with the 403(b) plan sponsor and they have unused amounts available for catch-up. If vendors are making this determination, provide employer oversight. Review calculations of the 15-year catch-up annually.

403(b) Plan Fix-It Guide
EPCRS Overview
403(b) Plan ChecklistPDF
Additional Resources