Employee Eligibility

[Felicia]

Can an eligible 457 plan, i.e., governmental plan, choose which employees are eligible? For example, can the plan provide coverage for a select number/class of employees?

[Everett Moreland]

The IRC places no restriction on the employer's selection of employees who may participant. The employer will need to comply with applicable discrimination rules outside the IRC.

[CTipper]

...The employer will need to comply with applicable discrimination rules outside the IRC.

By that I presume you mean age, race, sex, etc. Is that correct?

I'm being asked if a government entity can have a 457b plan for just one employee. Of course this one employee will be a highly compensated employee their second year of employment. The entity also has an old 401(k) plan that has benefits that would be considered less than the requested 457b plan.

Everything I've been able to find, plus your comment, seems to suggest that this is indeed the case. Is it?

Thanks

Christopher

[QDROphile]

State law will apply to a government 457(b) plan. Just like Forrest Gump's chocolates, you never know what you will get by way of restrictions or requirements under state law. I suspect that most states do not try to deal with substance and the the tax rules will be the only concern for plan design. However, you cannot count on a government entity to have authority under state law to have a 457(b) plan at all. You need to find authorization and the authorization might not expressly mention 457. State law research and interpretation can be difficult. I invite you to engage someone with appropriate professional experience.

[CTipper]

So, am I correct in understanding that what you're saying is that the upside of not being covered by ERISA is that we get to do what we want with plan design. The downside is that we don't have one set of rules to go by.

Is that right?

From what I'm hearing, federal law -- or the lack thereof -- allows the plan design they want.

The question is whether or not state law allows it. Is that correct?

Christopher

[QDROphile]

You have two layers of government regulation. Federal regulation is under the tax code. ERISA does not apply to governmental entities. The tax code allows discrimination in governmental plans, with limited exceptions. Without antidiscrimination rules, the employer can give benefits to some and not others and can give different levels of benefits to different employees. Other federal law must be considered to the extent it applies, so I suppose you could run afoul of federal antidiscrimination laws if you were an idiot or a knave.

Because ERISA does not apply to preempt state law, you also have to comply with state law. At the state level, you usually start from the proposition that a government entity cannot do anything unless the law authorizes it. For example, local governments may not be able to maintain their own retirement programs; they may be limited to participation in a state system. Once you get into the game, state law may have any number of requirements applicable to a retirement plan, including antidiscrimination requirements. You also have collective bargaining contracts to consider and political concerns that may influence plan design.

Are you getting paid for this?