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Post-Year-End Employer Contribution to 457(b) Plan


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Can an employer nonelective contribution for 2022 be made in January, 2023 for a calendar year nongovernmental 457(b) plan?  The contribution would be made to the account of a participant who contributed less than the applicable deferral limit in 2022.  

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A tax-exempt entity eligible 457(b) plan is "unfunded" promise to pay. The employer, if they so choose, can never contribute a dime of the required nonelective contributions until it is time to actually make a distribution. Since the employer "owns" the funds, then unless held in a Rabbi Trust, the employer can deposit or withdraw funds from a corporate account that, while used as setting aside 457 funding, is nevertheless owned by the employer and can be used for any purpose. In my limited experience with tax-exempt 457(b) plans, most employers utilize your method of contributing to a "segregated" account, with various interest crediting methods, etc.

But there's no deadline for the employer nonelective contribution deposits, although I believe it would be reported on the W-2 Box 12 for the year "allocated." You'd want to double-check that, as I'm not certain without checking myself.

Perhaps some 457 experts on this board can provide you with additional (and/or better) information.

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With a nongovernmental tax-exempt organization’s unfunded plan for select-group executives, there is no contribution; rather, there is a credit to the account the parties use to measure the organization’s unfunded contract obligation to its executive. (That many practitioners describe a credit as a contribution is understandable; even the Treasury department’s rules describe it that way.)

A deferral under a § 457(b) plan counts against § 457(b)’s deferral limit for the participant’s tax year “in which the amount of compensation deferred is no longer subject to a substantial risk of forfeiture.” 26 C.F.R. § 1.457-2(b)(1). If an amount is not immediately vested, the amount “must be adjusted to reflect gain or loss allocable to the compensation deferred until the substantial risk of forfeiture lapses.” 26 C.F.R. § 1.457-2(b)(2). Unless a plan provides immediate vesting or a separate vesting time on each year’s forfeitable credits, either rule (or a combination of them) might result in a bunching of what counts against a year’s deferral limit. See 26 C.F.R. § 1.457-4(c)(1)(iv) example 3 (five years’ nonelective credits, adjusted for an investment gain, counted as a deferral for the year in which the amount becomes nonforfeitable). In my experience, this easily might overwhelm the vesting year’s deferral limit.

To consider your question about whether a nonelective credit not paid over to a rabbi trust or other measurement investment until 2023 counts for 2022’s limit, one would evaluate whether the participant’s contract right to the deferred compensation became fixed and vested in 2022.

What did (or does) the written plan (which 26 C.F.R. § 1.457-3(a) requires) provide?

https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRf2be51fac065c2d/section-1.457-2

https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRf2be51fac065c2d/section-1.457-3

https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRf2be51fac065c2d/section-1.457-4#p-1.457-4(c)(1)(iv)

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Thanks, Belgarath and Peter Gulia!  This information is helpful.

The plan provides for nonelective employer contributions in an amount and allocation formula determined by the employer in its discretion. Contributions . . .er . . . credits are 100% immediately vested.

As the plan doesn't establish any fixed employer nonelective contribution, and it does not appear that any participant has a fixed right to a 2022 employer nonelective contribution under an employment contract or other arrangement, it seems the character of the credit may just depend on how it is reported for tax purposes.  For example, an amount credited today may be treated as a 2022 "deferral" if it is reported in box 12 of the participant's 2022 Form W-2 and it is treated as FICA wages earned in 2022.

You think? 

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If an executive lacks a right to a nonelective credit until the employer declares it, such a credit counts against the executive’s deferral limit for her tax year in which the credit was declared.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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