May a governmental § 457(b) plan allow participants to self-certify an unforeseeable emergency?

[Peter Gulia]

I’ve moved from the 401(k) to this board AMDG’s question:

“Self-certification is now permissible for governmental 457(b) plans, but the 457(b) regs are not as formulaic as the 401(k) regs regarding the events that constitute [an unforeseeable emergency]. Pending IRS guidance, it seems reasonable to me for a gov’t plan sponsor to adopt the 401(k) self-certification service model for its 457(b) plan, especially as EPCRS applies differently (basically, no risk of plan disqualification). I would love your thoughts! Thanks!”

Here’s some information, and some of what I think.

Internal Revenue Code of 1986 § 457(d)(4) provides:

“In determining whether a distribution to a participant is made when the participant is faced with an unforeseeable emergency, the administrator of a plan maintained by an eligible employer described in subsection (e)(1)(A) may rely on a written certification by the participant that the distribution is—

(A)  made when the participant is faced with an unforeseeable emergency of a type which is described in regulations prescribed by the Secretary as an unforeseeable emergency, and

(B)  not in excess of the amount required to satisfy the emergency need, and

that the participant has no alternative means reasonably available to satisfy such emergency need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the participant’s certification, and for procedures for addressing cases of participant misrepresentation.

An unnumbered flush paragraph at the end of § 457(b) provides:

“A plan which is established and maintained by an employer which is described in subsection (e)(1)(A) and which is administered in a manner which is inconsistent with the requirements of any of the preceding paragraphs [§ 457(b)(1)-(6)] shall be treated as not meeting the requirements of such paragraph as of the 1st plan year beginning more than 180 days after the date of notification by the Secretary of the inconsistency unless the employer corrects the inconsistency before the 1st day of such plan year.”

And here’s the rule or regulation § 457(d)(4)(A) refers to:

26 C.F.R. § 1.457-6(c) https://www.ecfr.gov/current/title-26/part-1/section-1.457-6#p-1.457-6(c).

I think (but advise no one):

Until another Treasury final or temporary rule is published, effective, and applicable, a State or local government employer may rely in good faith on its reasonable interpretation of the statutes.

Several interpretations of § 457(d)(4) are at least reasonable.

That a participant may self-certify she faces a situation particularly or generally described in § 1.457-6(c)(2)(i) seems at least a plausible interpretation of the statutes.

Observe that § 401(k)(14)(C) refers to “a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need” while § 457(d)(4)(A) refers to “an unforeseeable emergency of a type which is described in regulations prescribed by the Secretary as an unforeseeable emergency[.]”

As always, a government official, participant, service provider, or anyone affected by the question should get her or its lawyer’s advice.