403(b) and 457(b) contributions can be tracked in SchoolInsight Financials to help prevent employees from exceeding their annual contribution limits.
Because the possible catch-up plans can vary depending on the employee, and because employees may be enrolled in 403(b) or 457(b) plans with a second employer, it’s important to remember that SchoolInsight Financials cannot be the final arbiter, but we do offer some safeguards.
District Payroll Items
Through a combination of pre-tax/Roth plans and different catch-up options, there are 12 different payroll item types for 403(b) plans and 12 payroll item types for 457(b) plans.
SchoolInsight Financials automatically populates all 24 options (plus an additional 9 TRS-specific options at Illinois districts) on your District Payroll Items page.
Before adding any of these items to employees, you will need to make two changes:
- Add a Vendor, indicating the plan management company who receive and invest the funds.
- Add the Reduce Liability Account and Increase Liability Account for deductions, or add the Expenditures account and Liability Account for benefits.
Make these changes before adding the payroll items to any employees so that you don’t have to mass edit the details later.
The default DPIs all use the “Simple Amount” algorithm. If an employee needs to deduct a certain percentage of their gross pay, create a new DPI. All settings should match an existing payroll item, with the exception of the Algorithm field, which should be set to District Percentage.
All employees must be enrolled in an appropriate retirement plan before they can receive the payroll items.
To enroll employees in a 403(b) and/or 457(b) plan:
- Go to Financials Main > Human Resources > Employee - Single View
- Look up an employee
- Select the Retirement tab
- Set the 403(b) Enrollment to “Enrolled” if applicable
- If applicable, check Regular Catch-Up or 15 Year Catch-Up
- If selecting 15 Year Catch-Up, enter the Start Date and Additional Maximum Deferral
- Set the 457(b) Enrollment to “Enrolled” if applicable
- Set the Catch-Up to None, Regular, or Special
- If selecting Special, enter the Additional Maximum Deferral
In the Payroll tab of Employee - Single View, add the payroll items that are applicable to the employee and set the amount or percentage that should be deferred or contributed.
Using the correct payroll items is essential for proper detection of contribution limits, so pay careful attention to the difference between the plans.
Managing Contribution Limits
When SchoolInsight Financials detects that an employee has exceeded the maximum contribution limit for a particular plan, the payroll run will automatically cap the amount on the payroll items associated with that plan.
When allocations between different plans change, you will need to return to the Payroll tab of Employee - Single View and adjust the deferrals or contributions. Note that you should only do this in consultation with the plan administrator.
The following example using the 2022 457(b) contribution limits demonstrates how changes may be made to correctly allocate contributions to regular and catch-up plans without exceeding limits:
Martha Hobbs is enrolled in a 457(b) plan, which ordinarily has an annual contribution limit of $20,500. However, she is 52 years old, so she is eligible for the Regular Catch-Up plan, which allows her to defer an additional $6,500. She does not receive any employer contributions, and she is paid 24 times per year.If Martha plans to defer the maximum $1,125 per semi-monthly payroll, she will need two EPIs:
- TRS 457(b) SSP - Employee
- TRS 457(b) SSP - Employee - Regular Catch-Up
The amounts on these two payroll items could be set up in several different ways.
She could set it up so that each plan is divided equally across 24 payrolls.
- $854.16 for TRS 457(b) SSP - Employee
- $270.83 for TRS 457(b) SSP - Employee - Regular Catch-Up
She could set it up to max out her Regular Catch-Up first.
- In the first five payrolls of the year, she would defer $1,125 to the Regular Catch-Up plan
- In the sixth payroll, she would defer $875 to the Regular Catch-Up plan and $250 to the normal plan
- From the seventh payroll onward, she would defer $1,125 to the normal plan
Note: Without manual adjustment by the bookkeeper, the sixth payroll would defer $875 to the regular catch-up plan, and future payrolls would defer nothing.
She could set it up to max out her normal plan first.
- In the first 18 payrolls, she would defer $1,125 to her normal plan
- In the 19th payroll, she would defer $250 to her normal plan and $875 to her Regular Catch-Up plan
- From the 20th payroll onward, she would defer $1125 to her Regular Catch-Up plan
Note: Without manual adjustment by the bookkeeper, the 19th payroll would defer $250 to her normal plan and nothing to the Regular Catch-Up plan all year.
Any variation on these options is also possible, as long as the annual limits are respected. The company that manages the 403(b) or 457(b) should provide you with guidance about how to allocate deferrals for each employee.