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Lindy Theis

457(b) Plan Eligible Participants

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My employer (tax-exempt) has had a 457(b) plan for several years. The Plan states that any employee is eligible to participate in the Plan. The Plan up to this point however, has only been offerred to Highly compensated employees. I don't see anywhere in the regulations that 'prohibit' a regular employee from participating in the plan - and they want to offer the deferral to all employees - is this ok?

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No. A 457(b) plan for a tax-exempt (non-government) employer MUST be a top-hat plan. There is no bright-line definition for this, but ERISA (Employee Retirement Income Security Act of 1974) defines a top-hat plan as an arrangement maintained "primarily for a select group of management or highly compensated employees." Because the word "primarily" does not mean "exclusively", it is possible to cover some rank-and-file employees, but too many will cause the plan to violate the top hat requirement.


In some court cases you would find that plans that cover more than 15% of employees were not a top hat plan.


Other than the top hat requirement, there are no other limits on eligibility rules, e.g. – 4 Years of Service Eligibility Requirement? – that's OK. No 410(b) test, No 401(a)(26) test, No ADP/ACP test, No Top Heavy test, No 401(a)(4) test.

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