Matching contributions based upon deferrals to 457 plan

[Belgarath]

Since I rarely see a governmental plan, I was just curious if it is a common provision in a governmental profit sharing plan, to offer a matching contribution, which is based solely upon deferrals to the 457 plan?

[Carol V. Calhoun]

I'd say it's reasonably common. In a 401(k) or 403(b) plan, matching contributions are normally made to the same plan as the employee deferrals, and the 402(g) limit does not apply to the matching contributions. However, in a 457(b) plan, all contributions (not just employee deferrals) count toward the maximum limits. Thus, if matching contributions are made to the 457(b) plan itself, they will reduce employee deferrals. The only way around that is to have a separate plan to which employer matching contributions are made.

[tax & coffee]

Is this also permissible in a money purchase plan? For example, an employer elects to have a variable employer match into a 401(a) money purchase plan based upon employee deferrals to a 457(b).

[Carol V. Calhoun]

Yes, so long as the match is at a rate set forth in the plan, rather than at a rate subject to employer discretion. So if the plan states that there is a 50% match on employee contributions to the 457(b) up to 3% of compensation, you're fine. If the plan states that the employer can decide, in its discretion, whether to make matching contributions each year, you have a problem.