457b governmental

[30Rock]

We have a governmental employer that just received 501c3 approval from the IRS, and due to an acquisition they will become an ERISA sponsor. Can a 457b governmental plan be restated as a top hat plan, or should the plan terminate and then a new top hat plan be set up?

[oldman]

We have a governmental employer that just received 501c3 approval from the IRS, and due to an acquisition they will become an ERISA sponsor. Can a 457b governmental plan be restated as a top hat plan, or should the plan terminate and then a new top hat plan be set up?

The governmental 457 plan covers most employees and provides participants opportuntity to rollvoer monies to another elgibile retirement plan or IRA. Converting to a top hat plan would only cover a select group of management or HCEs and participants would not be allowed to take advantage of the rollover option. Best to termiante the existing plan and establish a brand new tax exempt 457 plan.

[ETA Consulting LLC]

I agree with the oldman. The only thing I would suggest is to consider a 403(b) for all emloyees since the tax exempt 457(b) would be offered to only the executive director and/or other highly compensated employees. The 403(b) would be the closest plan to what they already had in place. This is taking it one step beyond your question, but oldman is right on about the differences between the two types of 457(b) plans.

Good Luck!

[30Rock]

Of course the top hat plan provisions will only apply prospectively to new accounts, but I can see how existing account balances would be muddied with top hat funds being mixed in with deferred comp funds if the plan covers the same participants. Thanks!