Tax-Exempt 457(b) Plan Sponsors Face Year-End Amendment Deadline

Tax-exempt employers sponsoring 457(b) deferred compensation plans have until the end of the year to amend their plans—one year earlier than most other plan types.

Initially, qualified and governmental retirement plans had until the end of this year to adopt amendments required by the Setting Every Community Up for Retirement Enhancement Act of 2019 and the SECURE 2.0 Act of 2022. The IRS extended the deadline for most plans until December 31, 2026, when it issued Notice 2024-02 in late 2023, but tax-exempt 457(b) plans were excluded from the extension.

As a result, sponsors of tax-exempt 457(b) plans now face a short timeframe to implement amendments, such as the increase in the required minimum distribution age, which was first raised to 72 under the SECURE Act, then to 73 under SECURE 2.0, up from 70.5, says Scott Galbreath, who leads the executive and equity compensation practice team at Trucker Huss, an employee benefits law firm. It is unlikely that the IRS will grant tax-exempt 457(b) plans a last-minute extension, especially given the government shutdown, he says.

According to Galbreath, the best way to meet the deadline is to work with an attorney, third-party administrator or bundled service provider familiar with 457(b) plans of tax-exempt organizations—not just plans of state and local governments.

Making the amendments is typically not a hassle, but David Levine, a principal in Groom Law Group who advises plan sponsors on employee benefits matters, says sponsors affected by the deadline should meet with their lawyers and advisers to speed up the process.

“Talk to your provider and see what their position is, because they may have answers,” Levine says.