Timing for Deferral Elections under New 457(b) Plan

[Plan Doc]

Can a new nongovernmental 457(b) plan becoming effective 11/15/2022 allow employees to make initial deferral elections after 10/31/2022, but before the plan effective date, that will be effective to defer pay beginning 11/15/2022?  These are not new employees.

[Bob the Swimmer]

I would say no--has to be a plan in place for the deferral election (which operates before the pay is earned) to be operable.

[Luke Bailey]

Plan a Doc, I think I would see it differently from Bob the Swimmer. As you describe it, it appears that the election will only go into effect on the plan's effective date with respect to compensation earned after the plan's effective date. Assuming the election can be revoked if the revocation is reasonably before 11/15, in effect the election is being made "as of" 11/15.

[Plan Doc]

Thanks, BtS and Luke,

To be more specific, my concern relates to the rule requiring that a deferral election under a 457(b) plan must be in place by the last day of the month prior to the month in which the deferral is to become operative.  So, ordinarily, a deferral election filed in November could not take effect before December.

My question concerns whether, in the case of a new plan, there is an exception to this rule that would allow for deferral elections to be filed in the first half of November to be effective in the second half of November.

[Luke Bailey]

5 hours ago, Plan Doc said:

To be more specific, my concern relates to the rule requiring that a deferral election under a 457(b) plan must be in place by the last day of the month prior to the month in which the deferral is to become operative.  So, ordinarily, a deferral election filed in November could not take effect before December.

My question concerns whether, in the case of a new plan, there is an exception to this rule that would allow for deferral elections to be filed in the first half of November to be effective in the second half of November.

Good point, Plan Doc. Sorry I missed that. My guess is no. Based on the language in the Code, regs, and IRS model plan language, they would have had to make the election by October 31 for it to be valid in November. If there is a special rule for a new plan started mid-month, the IRS does not seem to be publicizing it. Maybe someone else will chime in differently. Be interesting to see.

[Plan Doc]

Thanks, Luke!

I think we'd best play it safe and make the plan effective December 1 instead of November 15.  Deferral elections made in November would then not be effective before the first payroll in December.

[Luke Bailey]

14 hours ago, Plan Doc said:

Thanks, Luke!

I think we'd best play it safe and make the plan effective December 1 instead of November 15.  Deferral elections made in November would then not be effective before the first payroll in December.

Good idea, Plan Doc. With a little advance planning, they can just double up and get the same amount in.