Government/457 Plans

A government plan or Internal Revenue Code Sec. 457 plan (457 plan) is another way for certain types of employees to save for retirement . As originally enacted, 457 plans allow employees of state and local governmental units to defer compensation for retirement.

Today, 457 plans are also available to employees of certain nongovernmental organizations exempt from tax under Code Sec. 501. The tax-exempt organizations that can set up a 457 plan include trade associations, private hospitals, private clubs, cooperatives, private schools, and labor unions. However, 457 plans do not apply to church plans maintained by a church or qualified church-controlled organizations.

Technically, 457 plans are non qualified deferred compensation arrangements. This just means that the Internal Revenue Code does not list this type of plan as a qualified plan. In practice, though, 457 plans increasingly share many of the same characteristics as qualified retirement plans. For example, tax law changes in 2001 raised contribution limits of 457 plans to the same limits as those for 401(k)s and 403(b) annuities . That is why 457 plans are discussed here in the qualified plan section rather than in the non qualified plan section.