Benefits of a 457 Plan
Is a 457 Plan Right for Your Organization?
A 457(b) Plan allows employees to save as much as double the maximum they can save in their 401(k) or 403(b) Plans each year. That’s right, the employee can save up to $18,000 (2017 maximum) in 401(k) or 403(b) plans plus another $18,000 (2017 maximum) in a 457(b) Plan.
More than $18,000 per year can be saved by certain employees (see table below)
A 457(b) Plan offered by a state or local government entity can be offered to some or all employees
Employees make the tax-deferred payroll deduction contributions (employer contributions are optional)
Participants select investments from a mutual fund menu just like a 401(k) or 403(b). To keep it simple, you can use the same menu.
457(b) plans are non-qualified plans, so there is no IRS Form 5500, no non-discrimination or other compliance testing and no burdensome set of required notices to participants
Not every employer can have a 457(b) Plan. Only tax-exempt 501(c) (3) organizations and state or local government entities.
For tax-exempt 501(c) (3) organizations, not all employees can enroll. Eligibility must be limited to groups of highly compensated employees or groups of executives, managers, directors or officers.
Who do 457(b) Plans Make Sense for?
Highly compensated employees. Why? They often can’t save enough in 401(k)’s and 403(b)’s due to regulatory maximums or when 401(k) nondiscrimination testing fails.
Any eligible employee who has failed to save the 457(b)’s $18,000 maximum each year and are within 3 years of the plan’s normal retirement. Why? They can contribute up to $36,000 in each of those three years or at least $18,000 plus where they fell short of $18,000 in prior years (see Table).
Is 457(b) Right for Your Organization?
You won’t need to go through an extensive review in order to determine if a 457(b) makes sense for your company. A discussion with a qualified investment advisor or attorney that specializes in employee benefits can help you further explore your options and discuss what to consider before making a decision.