Employer Matching Contributions

[Guest JCG]

A recent article in the National Underwriter, (Sept. 21, '98, Employee Benefits Report Supplement, p. S-11) has me confused. It states that 'The IRS has put 457 plans at an even greater disavantage by prohibiting the use of employer matching contributions as a incentive to participate.' I've reviewed this issue a number of times, and I can't find anything which supports this statement. I just did a LEXIS search and came up with zip, and my "Answer Book" contradicts this, too. Can you provide any guidance?

Thanks.

BTW, your discussions have provided very valuable insights to me. Great site.

[Guest CVCalhoun]

The only thing I can think of is that unlike 401(k) plans and 403(B) plans, in which the maximum limit on contributions applies only to contributions made at the discretion of the employee, the limit for 457 plans applies to all contributions, including employer matching contributions. Thus, if the employee contributes the maximum, the employer cannot contribute anything. We have avoided this problem in some instances by having the matching contributions made to a separate 401(a) plan maintained by the employer.

[Guest Ralph Amadio]

Possibly this is another one of the mysterious "committee reports" mentions that did not get into the law, similar to the "loan" provisions. Several providers are now providing the "loan" provision, and in addition, allowing participants to self-direct investments, which is interesting since 404© is an ERISA regulation from which governmental plans are exempt. In California, the governor has just signed a bill (AB 2764) sponsored by our coalition of public employers (PARS)that will allow both fiduciary layoff and self direction. Possibly the providers "just don't get it", in that they are now dealing with plans that are just as untouchable as 401(a) plans, and further that they must look to state law for governance, as well as federal. If you find out anything about your specific subject, or know of other anomalies, please share.

[Guest rsmelson]

One more guess: perhaps the author had the IRC 401(k)(4)(A) contingent benefit rules in mind. Note that I do not have a copy of the article, and thus am making this up as I go.