What Are the Limits on a 457(f) Plan?

“I work for a public university that sponsors a 403(b) and 457(b) plan, and is currently considering the addition of a 457(f) plan. Now, I know that we can allow all employees to participate in our 403(b) and 457(b) plans, but our recordkeeper is saying that the 457(f) must be limited to select management and highly compensated employees. Is this correct?”

Kimberly Boberg, Taylor Costanzo, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

Assuming that your plans qualify as governmental plans, no. The limitation of 457 plans (both (b) and (f)) to select management and highly compensated employees is a method of avoiding ERISA requirements under what is called a “top hat” arrangement. However, as governmental plans, your plans are already exempt from ERISA, and thus the “top hat” exemption is not necessary. Thus, all employees, or any employees of your choosing, are permitted to participate in a 457(f) plan should you choose to establish one. If you were a private university, however, you would need to limit 457 plan participation to select management and highly compensated employees.

Note, however, that even though all employees can technically be eligible for your 457(f) plan, the primary purpose of such a plan is to provide supplemental benefits to executives and these plans function a bit differently than what you see with qualified plans (e.g., relating to the taxation of contributions). It should also be noted that there are alternatives methods of providing such benefits as well, such as a 401(a) plan or a 415(m) plan. Outside retirement plan counsel should be consulted regarding your options here.

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. 

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