Expected 457(f) Plan Guidance to Address Long-Unanswered Questions

A 457(f) Supplemental Executive Retirement Plan is a non-qualified deferred compensation plan that allows non-profit organizations and governmental entities to provide additional retirement income, exceeding annual IRS limits for 457(b) plan contributions to key, highly-compensated executives. In a recent webcast, Bob Architect, vice president, Compliance and Market Strategy, VALIC, listed new proposed 457(f) regulations among the items coming in 2012.  

Architect said the proposed regulations are going to address some of the issues that have perplexed those in the industry for years. For one, it should answer the question: Are salary reductions good for 457(f) plans.  

In addition, the guidance should address whether there will be permitted rolling risks of forfeiture. Architect explained that this means, if have assets are eligible for forfeiture after five years, then the sponsor can extend that period in cases where subsequent elections to defer occur before the lapse of the period in which assets are subject to risk of forfeiture. If the subsequent election to defer occurs after the lapse, then the sponsor can continue the risk of forfeiture period for prior assets.  Architect said this may depend on whether amounts other than the participant’s deferral will be subject to that forfeiture.  

457(b) Plans   

Architect pointed out to VALIC webcast attendees that 457(b) plans allow for two types of catch-up contributions, in addition to the deferral limit allowed by the IRS. An age-50 catch-up and an additional catch-up equal to the IRS limit on deferrals, subject to three rules.  

The additional $17,000: 

• Requires an election by the participant; 
• Is limited to the total of unused limits for prior years; and  
• Is limited to the three years prior to the normal retirement age as defined by the plan. 

Architect noted 457(b) plan participants cannot double up on the catch-ups.