About

Section 457 plans are primarily for governmental employers, and some not for profit employers. Governmental employees were allowed for salary deferrals by Section 457 beginning in 1978, and the not for profit employers were covered in 1986. Eligible employers include all state and local employers, the District of Columbia, political subdivisions of a state, agencies or instrumentalities of a state, as well as employers who can qualify under Section 501(c)(1) to Section 501(c)(27).

Eligible Plans

These plans meet the requirements of 457(b) and 457(e) and are maintained by an eligible employer. There are certain mandatory features of these plans. An eligible employer is a state, political subdivision of a state, church, & tax-exempt organizations.

Mandatory Features:

1. The plan must provide that the compensation is deferred only after an agreement providing for such deferral has been entered into.
2. The plan document must specify a deferral ceiling not to exceed current limits. The contributions must not exceed 100% of compensation after the contribution is deducted. The contributions are limited to the current statutory limit.
3. The plan assets must remain assets of the employer except in the case of a 457(g) trust.
4. Plan must specify that the plan assets are for the exclusive use of the participant and beneficiaries for governmental employers.
5. Plan must specify a specific fixed time or event that triggers the individuals right to receive payments under the plan.
6. Payments must be only made to the participant upon the attainment of age 70 1/2, separation of service, or unforeseen emergencies. The plan may provide that no distribution will be made until after a participant separates from service.
7. Payments to a participant must commence no later than the April 1st of the year following the year in which the participant attains age 70 ½ or the April 1st following the calendar year in which the employee retires.
8. Benefits that commence prior to death must be paid out during a period not to exceed 15 years or the life expectancy of the surviving spouse if the spouse is the beneficiary.
9. Plans are no longer required to coordinate deferrals with 401k) 403(b) plans.

Permissive Features

1. An exception to the rule that compensation to be deferred must be entered into before the first day of the month may be made for newly eligible participants.
2. Participant has the right to contribute and within limits to determine the amounts to be contributed
3. Participant may be permitted to direct investments
4. Within limits the participant may select own retirement age unless limited by state law.
5. A plan may provide for benefits to be made to participants in the event of an unforeseeable emergency.
6. A plan may provide for transfers to another eligible plan.
7. A governmental plan may provide for loans to participants.

Governmental Employers

Trust Requirements

1. All amounts that are deferred are held in trust for the exclusive use of participants and beneficiaries.
2. Assets in the trust are not subject to the claims of the employer’s creditors.
3. Insurance contracts are treated as a trust with the contract holder as trustee.
4. Custodial contracts must be held by a bank and are treated as a trust with the participant as the trustee.

Plan Provisions

1. The plan may restrict participation by age and/or service and classification.
2. The plan may provide for loans.

Employer Contributions

1. The employer contributions may be limited by state law.
2. The employer contributions may be subject to a vesting schedule.

Transfers

Transfers to or from other plans may be made from IRA’s 403(b), 401(a), or other governmental 457(b) plans. The plan man not provide for transfer to or from 457(f), or 457(b) plans. Transfers must, however, be accounted for separately.

Catch Up Provisions

The catch up contributions are available to participants who are 50 or older in the plan year limited by statute. The participant may also defer two times the deferral limitation in each of the last 3 years prior to normal retirement date.

Not For Profit Employers

Asset Requirements:

1. All assets of the plan are subject to the claims of creditors until paid to the participant or beneficiary.
2. Assets in the trust are only subject to claims of employer’s creditors.
3. The plan may use a Rabbi Trust to segregate assets for participants.

Plan Provisions

1. The plan must restrict participation by a select group of employees.
2. The plan must be “unfunded”. The assets must be subject to a substantial risk of forfeiture.(i.e. non vested until, death, termination, or retirement).

Transfers from other Plans

Transfers to or from other plans may be made from IRA’s 403(b), 401(a), or other governmental 457(b) plans. The plan man not provide for transfer to or from 457(f), or 457(b) plans. Transfers must, however, be accounted for separately.