Non-Governmental 457 Retirement Plan | Lord Abbett

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Non-Governmental 457 Plan

Non-profit organizations can establish 457 plans that allow their senior executives to save more than is permitted through a 401(k) or 403(b) plan. The savings can either be employer or employee generated.

What is a non-governmental 457 plan?

Nonprofit employers usually establish 457 plan accounts in addition to their 403(b)1 or 401(k)2 retirement plans. These nonqualified, deferred-compensation offerings are established as either a 457(b) and/or 457(f) plan. Employers and/or certain employees have the ability to defer a specified amount of pretax income. Non-governmental 457 plans must be limited to higher-compensated employees only. Because 457 plans limit eligibility to its management, 457 plans are often called "top-hat" plans.

How does a non-governmental 457 plan work?

A nonprofit employer establishes a Lord Abbett 457 plan by completing a separate adoption agreement for each plan type.

  • 457(b): Allow for the employer and/or executive to contribute a maximum of $18,000 (age 50 catch-up is not permitted) of pretax income. The contributions and earnings accumulate tax-deferred until paid to the executive. The executive's account is an employer asset, subject to any claims made by its creditors.
  • 457(f): Allow for the employer and/or top-level executives to contribute without regard to a maximum contribution limit. Amounts contributed are subject to a "substantial risk of forfeiture," meaning it must be conditioned upon future performance and/or attainment of a certain age. In other words, the employee could forfeit everything he/she saved. Taxes are not due until the year the substantial risk of forfeiture lapses, as defined in the plan document.


What You Need To Know

  • Churches are ineligible to adopt a 457 plan
  • 457 regulations require employers to own the 457 plan assets until they are paid to the employee. In addition, assets must be subject to the claims of the employer's creditors.
  • Assets are not permitted to be rolled over into an IRA or employer-sponsored plan.
  • Doesn't affect IRA contribution limits
     

Why should a non-profit employer consider a non-governmental 457(b) or 457(f)?

  • To reward and retain top executives
  • To provide an additional method of saving for retirement
  • To create "golden handcuffs" that provide incentives for executives to remain with the organization
 

RELATED RESOURCES


  457(b) Plan Brochure
  2017 Retirement Limits Flyer

 

 

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