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457(b) And (f)

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I notice that some tax-exempt organizations use the 457(b) plan to allow select "top hat" management to make additional salary reductions contributions above what they contribute into their 401(k) or 403(b). Then, these organizations may use the 457(f) to make any discretionary employer contributions as a way to attract select employees.

The 457(b) "eligible" plan does not have to be subject to the "substantial risk of forfeiture" (SRF) requirement like the 457(f) "ineligible" plan does. Below are some other differences between the 2 types of 457 plans (if 457(b) plan has immediate/100% vesting):

• 457(b) do not have to condition benefits based on performance of services; 457(f) must

• 457(b) has annual contribution limits (i.e. $16,500 in 2010); 457(f) is unlimited

• 457(b) is subject to FICA tax in the year of deferral and income tax in the year of distribution; 457 (f) is subject to income tax/FICA upon on the lapse of SRF

• 457(b) is exempt from 409A; 457(f) is subject to 409A

• 457(b) allows for unforeseeable emergency withdrawal; 457(f) does not

I hope this helps.

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In general, vesting and the oevrall amount are normally the key differentiating issues here.


If you want to retain someone important for a certain length of time, or until the completion of a specific goal, then the 457(f) plan can be designed to not vest until that triggering event occurs. If they leave before that, then would lose out on all or a significant portion of the promised benefit. Also, since the amounts that can be available in a 457(f) plan are not limited like a 457(b) plan is, the size of the carrot can be very significant.

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