Chapter 27
SECTION 457 PLANS
LEARNING OBJECTIVES:
A. Identify key factors related to Section 457 plans
REVIEW:
This chapter discusses Section 457 plans. After identifying these, normally
government-related, nonqualified deferred compensation plans, the chapter
moves into the area of design features. The design features section covers what
employers are covered by Section 457, limits on amount deferred, timing of
salary reduction elections. distribution requirements, coverage and eligibility, and
funding. Next, the chapter discusses tax implications, highlighting the federally
tax-exempt status of the employer-sponsor. ERISA requirements normally do not
apply, because of the status of the employer-sponsor. Alternatives are discussed
and some information on how to install a plan is given. Following two references
on learning more, the chapter closes with a question and answer section.
CHAPTER OUTLINE:
A. What Is It?
B. When Is It Indicated?
C. Design Features
1. What Employers are Covered by Section 457
2. Limit on Amount Deferred
3. Timing of Salary Reduction Elections
4. Distribution Requirements
5. Coverage and Eligibility
6. Funding
D. Tax Implications
E. ERISA Requirements
F. Alternatives
1
Chapter 27
G.
H.
I.
J.
How To Install A Plan
Where Can I Find Out More About It?
Questions And Answers
Chapter Endnotes
FEATURED TOPICS:
Section 457 Plans
CFP® CERTIFICATION EXAMINATION TOPIC:
Topic 61: Types of retirement plans
A. Characteristics
Topic 63: Other tax-advantaged retirement plans
A. Types and basic provisions
6) Section 457 plans
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Identify key factors related to Section 457 plans
KEY WORDS:
Section 457 plan, nongovernmental tax-exempt organization
DISCUSSION:
1. Discuss how Section 457 plans relate to qualified retirement plans.
2. Discuss the tax implications related to Section 457 plans.
QUESTIONS:
Chapter 27
1. Which of the following organization types are eligible to use a Section 457
plan?
(1) church or synagogue
(2) a state agency
(3) a public school district
(4) a sewage authority
a.
b.
c.
d.
(1) only
(1) and (2) only
(1) (2) and (3) only
(2) (3) and (4) only
Chapter 27, p. 249
2. Which of the following would be considered an unforeseeable emergency that
would permit distributions from a Section 457 plan?
a.
b.
c.
d.
loss of property due to casualty
purchase of a residence
college education of children
significant investment losses due to stock market fluctuations
Chapter 27, pp. 250, 253
3. What alternatives are not normally available for governmental (non-public
school) employers who want to provide retirement benefits to employees?
(1) qualified pension plan
(2) Section 403(b) plans
(3) qualified profit sharing plan
(4) 401(k) plans
a.
b.
c.
d.
(1) and (3) only
(2) and (4) only
(1) (2) and (3) only
(2) (3) and (4) only
Chapter 27, p. 252
4. At what point are deferrals under an ineligible plan normally taxed?
Chapter 27
a.
b.
c.
d.
immediately
upon reaching age 65
in the first taxable year in which there is no substantial risk of forfeiture
when the employer declares the deferral
Chapter 27, p. 253
ANSWERS:
1. d
2. a
3. b
4. c