457 Combined with Profit Sharing Plan

[Guest Gerry Hedgcock]

Can a governmental entity establish a 457 plan to which only employee deferrals are made and have the employer contribution go to the profit sharing plan in an effort to raise the annual additions to the participants account above $8,000? Example; Employee earning $130,000 per year defers $8,000 in a 457 plan and the employer makes a contribution at 7.5% of salary under a separate profit sharing plan in the amount of $9,750. The 25% of compensation limit is not exceeding nor the $30,000 ceiling. Is this permitted?

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[Guest PeterGulia]

Before you spend your client's time evaluating that plan design, ask the municipality's lawyer whether the municipality has power to create its own pension or profit-sharing plan. (In many states, a municipality does NOT have authority to create a pension or profit-sharing plan.)

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[Carol V. Calhoun]

Any barriers to this arrangement would be matters of state law. If your state permits a municipality to adopt such a plan, nothing in federal law would prohibit it. Indeed, it is a fairly common plan design.

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