457(b) Plans

    • What is a 457(b) plan?

      A 457(b) is a deferred compensation retirement plan, available for certain state and local governments as well as non-governmental entities that are tax-exempt under IRC Section 501. This plan allows employees to defer income tax on retirement savings into future years.

    • What are the benefits of a 457(b)?
      • Contributions to a 457(b) are tax-deferred.
      • Earnings on the retirement money are tax-deferred.
    • Who may establish a 457(b)?

      A tax-exempt organization under IRC 501(c) or a state or local government may establish this plan.

    • Who may participate in a 457(b)?

      Employees of eligible organizations that have established a 457(b) may participate. Employers or employees may contribute up to the IRC 402(g) limit ($18,500 in 2018; $18,000 from 2015 to 2017).

      How do I start a 457(b)?

      1. Adopt a written plan, called the plan document, which outlines its day-to-day operations.
      2. Identify a plan provider and/or trust for the plan’s assets and investments.
      3. Select a recordkeeper or recordkeeping system to track contributions, earnings and losses, and distributions. This person or entity will also help prepare the annual return, which must be filed with the federal government.
      4. Select a third party administrator to maintain the plan document, fulfill daily tasks and ensure compliance with federal regulations. Your financial advisor may choose a third-party administrator and/or recordkeeper on your behalf.
      5. Provide eligible employees, or plan participants, with a summary plan document (SPD), which is the document that outlines who can participate and how the plan works.

      The written plan also provides a central document, or collection of documents, which explains the rights of the employees and employee eligibility for participating in the plan and enables government agencies to determine whether it satisfies applicable laws.

      If the plan allocates responsibilities for performing administrative functions to other parties, such allocation must identify who is responsible for ensuring compliance with the requirements of the tax code, including compliance requirements for loans and distributions.

      In the case of a funding through multiple financial institutions, the employer may adopt a single written plan to coordinate administration among the financial institutions, rather than having a separate document for each issuer.

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