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Tom W

457 Non-governmental Plans

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Non-governmental plans

Non-governmental plans can now be set up by non-profit organizations in addition to their 403(b) plans. They may either be "eligible" plans set up under section 457(b) or "ineligible" plans set up under section 457(f). ERISA legislation has said that non-governmental plans must be limited to some group of higher compensation employees. The level of compensation required is not specified by ERISA, but it must be according to some ascertainable standard that the employer sets. The same highly compensated limit ($100,000 a year for 2006) in place for 401(k) discrimination testing would likely be acceptable, as would restricting the plan to some class of employees such as directors or officers. Because of this limitation to higher-compensation employees, 457b plans are often referred to as "top hat" plans.


Non-governmental 457 plans have a number of restrictions that governmental ones do not. Money deferred into non-governmental 457 plans may not be rolled into any other type of tax-deferred retirement plan. It may only be rolled into another non-governmental 457 plan. Also, money deferred into non-governmental plans is not set aside in a trust for the exclusive benefit of the employee making the deferral. The Internal Revenue Code requires that money in a non-governmental 457 plan remains the property of the employer and is thus available to general creditors of the employer in legal or bankruptcy proceedings.







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A tax-exempt entity can only establish a 457(b) plan to cover a select group of top management employees (a top hat plan). The assets in that plan can NOT be placed into a protected trust, but MUST remain assets of the employer (until such time that the amounts can be paid out).


Govermental 457(b) plans and tax-exempt 457(b) plans have a large number of other differences, here are a few, the first answer is for Gov 457(b) and the second is for Tax Exempt 457(b):


General Comparisons, Govt 457(b), Tax Ex 457(b)

Can cover all employees? Yes, No

Top-hat restrictions? No, Yes

Deposit timing requirement: 15th business day after the month, none

Age 50 catch-up available? Yes, No

Age 50 $5,000 catch-up available? Yes, No

Excess deferral refund deadline: as soon as administratively feasible, April 15

Protected trust required? Yes, No

Participant loans allowed? Yes, No

Option to purchase past service in DB plan? Yes, No

Taxation of payments: When Paid, Constructive Receipt

Taxation reported on Form: 1099-R, W-2

Taxfree health premium distributions allowed? Yes, No

Rollovers allowed / rollover notice required? Yes, No

Mandatory 20% withholding required? Yes, No

Subject to automatic rollover rules? Yes, No


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