A §457(b) Plan is designed to benefit a select group of key executives by offering “non-qualified deferred compensation.”  Nongovernmental tax-exempt organizations are eligible to sponsor a §457(b) Plan.

Below are some features of an eligible §457(b) Plan:

• The Plan will not be subject to the typical qualification requirements that §401(k) plans must adhere to, such as minimum coverage and participation, and nondiscrimination testing.  Thus, benefits may only be offered to small group of executives, sometimes referred to as the "top-hat" group.  

• The plan document must specify an annual deferral ceiling.  [Click Annual Plan Limits] 

• The annual deferral limit is in addition to an employee’s deferrals under a §401(k) or §403(b) plan of the same employer, so that §457 deferrals do not reduce the amount that may be deferred under the nongovernmental tax-exempt organization’s §401(k) or §403(b) plan.

• Plan assets will remain employer assets until distributed to the employee.   The employee’s right to receive the deferred compensation is no greater than an unsecured general creditor of the nongovernmental tax-exempt organization.  Unlike a qualified §401 plan, contributions made under a §457(b) non-governmental tax-exempt plan are not deposited to a trust.

• The plan may specify a fixed or determinable amount of time of payment by reference to the occurrence of an event ( for example retirement) that triggers the employee’s right to receive or commence receiving amounts (which includes investment earnings on contributions) deferred under the plan.

• Deferred compensation (which includes investment earnings on contributions) must be payable to the employee only on attainment of either age 70½; severance of employment (restricted to severance at retirement age, if desired); or the occurrence of an unforeseeable emergency (as defined by IRS).  Required minimum distributions under IRC §401(a)(9) at age 70½ also apply.

Please call Hembree TPA, Inc. at (888) 486-401k or e-mail us at info@hembreetpa.com to establish a new §457(b) Non-Qualified Deferred Compensation Plan or review an existing §457(b) Non-Qualified Deferred Compensation Plan. 

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