What Entities Can Sponsor a 457(b) Plan?

“What entities can sponsor a 457(b) plan?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

There are several types of entities that can sponsor a 457(b) plan, as follows:

1)         State or local government entities (but NOT the federal government);

2)         Tax-exempt organizations – subject to the church exception below (and note that this definition is NOT limited to 501(c)(3) charitable organizations, but includes other 501(c) entities as well); and

3)         Rural electric cooperatives that are exempt from tax under the Code (for those of you unfamiliar with such organizations, they are utilities where the customers of the utility actually own the entities—they were developed to provide electric service to rural areas that traditional utilities would not service).

Interestingly, entities that are churches under Code section 3121(w)(3)(A) or qualified church controlled organizations under Code section 3121(w)(3)(B) cannot sponsor a 457(b) plan—and are subject to the regular 409A rules on nonqualified compensation—though certain church-related organizations, including many colleges, universities, hospitals, and nursing homes, can indeed sponsor a 457(b) plan, since they generally are not qualified church-controlled organizations (sometimes referred to as “NQCCOs”) under Code section 3121(w)(3)(B).

Finally, it should be noted that the guidance is somewhat unclear as to whether Native American tribal government entities can sponsor 457(b) plans.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.