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(b)lines Ask the Experts – Differences in 457(b) Plans for Different Entities

“What are the primary differences between a 457(b) plan of a private tax-exempt organization and a governmental 457(b) plan?”

By PS | May 16, 2017

David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer: 

There are many significant differences between governmental 457(b) plans and those sponsored by a private tax-exempt organizations. These difference include, but are not limited to, the following:

1)      Private tax-exempt 457(b) plans MUST limit participation to select management or highly compensated employees; governmental 457(b) plan sponsors may decide who is eligible to participate at their discretion, and may allow all employees to participate if they so choose.

2)      The distribution rules for private 457(b)s are much more restrictive than for governmental 457(b)s, which are more akin to a 401(k).

3)      Private 457(b)s must be unfunded (though a rabbi trust is allowed), while a governmental 457(b) must be funded with a trust, custodial account or annuity contract similar to a 401(k).

4)      Rollovers to/from governmental 457(b) plans are permitted; rollovers to/from private tax-exempt 457(b) plans are NOT permitted.

5)      Roth deferrals are prohibited in private tax-exempt 457(b) plans, while such deferrals are permitted in governmental 457(b) plans

6)      Loans are permitted from governmental 457(b) plans; while loans are prohibited from private tax-exempt 457(b) plans

7)      Private 457(b)s must file a one-pager with the Department of Labor (DOL); governmental 457(b)s make no DOL filing.

8)      Age 50 catch-ups are permitted for governmental 457(b)s, not for private 457(b)s.

Thus, it is important to identity the type of entity sponsoring the 457(b) plan in order to determine which rules apply to the plan.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

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