457(b)---Basic Questions

[Guest BSimpson]

I'm a rookie to the 457 arena, and have some basic questions,

1) Is the 457(B) considered to be a qualified or non-qualified plan.

2) Does the new EGGTRA changes allow a former participant in a 457(B) plan roll their account balance to a 401(k)?

3) Since the 457(B) Plan does not require annual discrimination testing and 5500 filing, is there any need to have (and pay for) a TPA?

4)Is there any reason an eligible employer would not want to have both a 401(k) and a 457(B) plan, since an eligible employee can now contribute $11,000 to each plan?

5) It appears that a 457(B) plan allows a plan sponsor to discriminate who is eligible. Are there any rules governing eligibility or can I, the plan sponsor, allow only the people I like (and who are nice to me) to enter the plan?

6) Do you have any recommendations as to an investment company who is willing to work with smaller non-profit entities in establishing 457 plans?

Thanks for your assistance,

[QDROphile]

Here are answers to questions you did not ask (except indirectly).

A 457(B) plan for a nonprofit, nongovernmental entity is still subject to ERISA, which limits its use to a select group of management or highly compensated employees. That will be a very small group in the average "smaller non-profit."

Also, the plan must be unfunded, so any amounts set aside would be lost to creditors in a bankruptcy. If the non-profit has uncertainty about its funding or finances, would someone want to bet a portion of a paycheck?

You also need to worry about securities law compliance, although exemptions from registration are probably available under state and federal law.

[mbozek]

ans:

1. nonqualified plan- no annual reports required

2. no- only can transfer 457(B) account to another 457(B) plan.

3. no- if the employer can keep track of separate accounts.

4. no. If 403(B) plan is maintained employee deferral can be up to $15,000.

5. plan can discriminate in eligibility and benefits. However participation must be restricted to a select group of management or highly compensated employees to avoid having to hold the assets in trust and other ERISA requirements. The determination of who is eligible is a facts and circumstances decision base on compensation and job title.

6. Most investment co will provide 457 plan investments- the questions is how much will they charge and whether they will provide documents and support. Participants can self direct investments or employer can invest 457 funds as part of np endowment. I can provide documents and advice.

Also under some state laws assets are protected from creditors of employee. Each state has diferent rules. Also application of securities laws to 457 plans is determined by counsel.

[Guest Lex]

I thought that due to EGTRRA distributions from a 457 plan could be rolled over into a 401(k)?

[Guest Lex]

To clarify my last comment-

It is my understanding that governmental 457 plans can be rolled to a 401k; non-governmental (tax exempts) cannot.

[mbozek]

no rollovers are permitted for 457(B) plans of NP employers.

[CTipper]

ans:

5. plan can discriminate in eligibility and benefits. However participation must be restricted to a select group of management or highly compensated employees to avoid having to hold the assets in trust and other ERISA requirements. The determination of who is eligible is a facts and circumstances decision base on compensation and job title.

Does this answer apply to both types of 457B plans?

Your statement about facts and circumstances makes it seem like it's only for non profits.

Thanks

Christopher

[TLGeer]

If the plan is not a governmental plan or a church plan that is ERISA-exempt, then it has to squiggle out of ERISA funding rules. In theory, a non-profit 457 plan could be an excess benefit plan, but in practice that is not done. That means that most non-profit 457 plans are structured as plans for a select group of management and highly compensated employees to avoid ERISA funding rules that would cause the plan to lose 457 status.

Tom Geer