457 Answer Book, Sixth Edition (Posted on August 25, 2016 by )


Carol V. Calhoun, Counsel
Venable LLP
600 Massachusetts Avenue, NW
Washington, DC 20001
Phone: (202) 344-4715
Fax: (202) 344-8300
Mobile: (202) 441-5592
E-mail: Click here to send e-mail.
Carol V. Calhoun

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Book Description

The 457 Answer Book is an in-depth resource that provides answers to the questions that tax-exempt organizations, state and local governments, their accountants, tax and legal advisors, 457 administrators, product providers, and investment counselors need to know.

Guiding readers through all aspects of 457 plan administration — from installation through the audit process — the 457 Answer Book describes: the duties and responsibilities of those performing the functions; the required legal, accounting, and administrative tasks; checklists that facilitate control of each administrative process; and suggested forms.

The 457 Answer Book also provides:

  • The history and legal origins of the plan
  • Design and drafting standards
  • Suggested administrative procedures
  • Data processing and payroll considerations
  • Operations and fund flow mechanics
  • Marketing and sales suggestions
  • And much more

457 Answer Book, Sixth Edition has been updated to include:

  • A completely revised and updated chapter on eligible 457 plans
  • A discussion on the effect of the Supreme Court’s June 26, 2013 decision in United States v. Windsor on 457 plans
  • A completely revised and updated chapter on beneficiary designations
  • How operational and document failures can be corrected in a governmental 457(b) plan on a provisional basis
  • How would proposed regulations issues in 2012 revise the meaning of “substantial risk of forfeiture” for an ineligible 457(f) plan
  • How a sponsor of a 457(b) plan can use the EBSA’s Delinquent Filer Voluntary Compliance Program (DFVCP) to avoid civil penalties under ERISA
  • A completely revised and updated chapter on IRS form reporting
  • Recent IRS guidance regarding the corrections of certain failures of a nonqualified deferred compensation plan to comply with Code Section 409A
  • Detailed information regarding federal income tax withholding requirements for distributions from 457(b) plans
  • How and when a DRO may provide for a spouse in a same-sex couple
  • A discussion of the provisions allowing for in-plan Roth conversions under the American Taxpayer Relief Act of 2012 (ATRA)
  • How a technical correction allows distributions from governmental retirement plans to be excluded from gross income to pay certain health-care premiums
  • Discussion of the status of exclusive benefit custodial accounts holding mutual fund shares in connection with 457 plans for eligible public employers
  • The IRS’s updates to the missing persons’ letter forwarding program
  • How Hurricane Sandy impacts the distribution rules from eligible 457(b) plans
  • Why an Ohio court excluded from the debtor’s estate assets associated with a non-governmental 457 plan
  • The limited relief provided to eligible 457 plans sponsored by private tax-exempt organizations under the 2013 revision of the IRS’s Employee Plans Compliance Resolution System (EPCRS)
  • A discussion of how distributions to participants, former participants, and beneficiaries of a deceased participant are reported to the IRS

Table of Contents

  • 1. The History of 457 Plans
    • Deferred Compensation Before Code Section 457
    • Code Section 457 Enactment
    • Extensions of Code Section 457 in the 1980s
    • Changes in the 1990s: Code Section 457 Plans Start to Look More Like Retirement Plans
    • EGTRRA
    • Job Creation and Worker Assistance Act and Pension Protection Act
    • Final 457 Treasury Regulations
    • Effect of the American Taxpayer Relief Act of 2012 (Public Law 112-240)
    • United States v. Windsor (2013)
  • 2. Eligible 457 Plans
    • Eligible Employers and Participants
    • Plans Subject to Code Section 457
    • Eligible 457(b) Plan Requirements and Design
    • Deferral Limits for 457(b) Plans
    • Distributions: Tax Consequences, Reporting and Withholding
    • 457(b) Errors and Corrections
    • Governmental 457(g) Trusts
    • Eligible Plans and Insurance
    • Accounting for Governmental 457(b) Plans
    • References
  • 3. Distribution Rules
    • Overview of Legislation Affecting 457 Plans Since EGTRRA
    • Early Distribution Rule
    • Minimum Distribution Rule
    • Distributions from Designated Roth Accounts
    • Rollovers and Transfers
    • Direct Rollovers to Roth IRAs
    • In-Plan Roth Rollovers (IRRs)
    • Direct Plan-to-Plan Transfers
    • Special Distribution Rules for Public Safety Employees and Officers
    • Distributions from Automatic Contribution (Enrollment) Arrangements
    • Distributions for Employees on Active Military Duty
    • Disaster Relief Distributions
    • Other Distribution Rules
  • 4. Investments
    • Permitted Investments for Deferred Compensation Plans
    • Types of Investments
    • Rabbi Trusts
    • Trusts for Governmental Deferred Compensation Plans
    • Employer Responsibility for Plan Investments
    • Participant-Directed Investment
    • Providing Investment Education and Investment Advice
    • Paying Plan Administration Expenses
    • Timely Investment of Contributions
  • 5. Beneficiary Designations
    • Author’s Notes
    • Making a Beneficiary Designation
    • Family Rights That Restrain a Beneficiary Designation
    • How Divorce Might Affect a Beneficiary Designation
    • Other Events That Might Affect a Beneficiary Designation
    • Disclaimers
    • Giving Advice About Making a Beneficiary Designation
    • Common Mistakes
  • 6. ERISA, its Exemptions, and Other Nontax Considerations for 457 Plans
    • ERISA in General
    • Governmental Plans
    • Church Plans
    • Top-Hat Plans
    • Excess Benefit Plans
    • Severance and Welfare Plans
    • Selected Securities and Insurance Law Issues for 457 Plans
    • ERISA and Tax Consequences of Funded 457(f) Plans
  • 7. Mergers and Acquisitions
    • 457 Plan Considerations
    • Severance Pay and 457(b) Plans
  • 8. Defining a Top-Hat Plan in Connection with 457 Plans
    • 457 Plans and ERISA
    • Top-Hat Group
    • Advisory Opinions and Case Law
    • Other Definitional Issues
    • Future DOL Guidance
    • Applying the Rules
  • 9. Creditors’ Rights
    • Shumate and ERISA Qualified Plans
    • Shumate and 457 Plans Before the SBJPA
    • Shumate and 457 Plans After the SBJPA
    • Exemptions from the Bankruptcy Estate
    • Judgment Creditors in Nonbankruptcy Situations
    • Consequences of Availability of Benefits to Creditors
    • Consequences of the Bankruptcy of the Plan Sponsor
    • Judgment Creditors in Bankruptcy
  • 10. Application of Federal Securities Law to 457 Plans
    • Federal Securities Laws and 457 Plans Generally Eligible Public Employer 457 Plans Under Code Sections 457(b) and 457(e)(1)(A)
    • Eligible Tax-Exempt Employer 457 Plans Under Code Sections 457(b) and 457(e)(1)(B)
    • Noneligible 457 Plans Under Code Section 457(f)
  • 11. Ineligible Plans Under 457(f)
    • Deferral of Compensation Rules
    • Distribution Requirements
    • Coordination of Plans
    • Limitations on Benefits
    • ERISA Requirements
    • Income Inclusion Rules
    • Securing the Benefits
    • Limitations to 457(f)
    • Life Insurance Contracts
    • Estate Tax Considerations
    • Transfers and Rollovers
    • Social Security and Medicare Taxes
    • State Tax
    • Participation in Other Plans
    • Funding Requirements and ERISA Considerations
    • ERISA Administration and Enforcement
    • Federal Securities Law
    • American Jobs Creation Act of 2004
  • 12. IRS Form Reporting and Related Issues
    • General 457 Reporting Rules
    • ERISA Reporting Requirements
    • FICA and FUTA Taxes
    • IRS Form 940—Employer’s Annual FUTA Tax Return
    • IRS Form 945—Annual Return of Withheld Federal Income Tax
    • Reporting Distributions on Form 1099-R
    • Rollover Distribution Notice
    • Taxpayer Identification Numbers
    • IRS Form W-2—Wage and Tax Statement
    • IRS Form W-3—Transmittal of Wage and Tax Statements
    • IRS Form W-4—Employee’s Withholding Allowance Certificate
    • IRS Form W-4P—Withholding Certificate for Pension or Annuity Payments
    • IRS Form 5329—Additional Taxes Attributable to Qualified Retirement Plans (Including IRAs), Annuities, and Modified Endowment Contracts
    • IRS Form 1040—Individual Income Tax Return
    • IRS Form 990—Return of Organization Exempt from Income Tax
    • IRS Form 990-T—Exempt Organization Business Income Tax Return
  • 13. Domestic Relations Orders
    • The Need for Domestic Relations Orders to Divide Section 457 Plans
    • Elements of a Domestic Relations Order
    • Elements of an Approved Domestic Relations Order
    • Distribution to an Alternate Payee Before a Participant’s Severance from Employment
    • Death or Survivor Benefits
    • Effect of a Participant Loan on Distribution to Alternate Payee
    • Administration of Court Orders
    • Tax Treatment—Eligible Section 457 Plans
    • Tax Treatment—Ineligible Section 457 Plans
  • 14. Miscellaneous Issues
    • Agencies, Tribes, and International Organizations
    • Independent Contractor Problems
    • Failed 457(b) Plans; Restrictions on Investments of Eligible Plans
    • Governmental Form Filings
    • Matching Contributions
    • Benefit Reductions
    • Plan Choice Alternatives
    • Leave Conversion Plan
    • Rollovers
    • USERRA
  • 15. 457 Corrections Programs
    • Corrections Programs Eligibility
    • General Principles
    • Cessation of Eligible Status
  • 16. Administration of 457 Plans
    • The Plan Administrator’s Role
    • Administrative Compliance
    • Working with 457 Plan Limits
    • Pension Protection Act of 2006 Changes Affecting Administration
    • Heroes Earnings Assistance and Relief Tax (“HEART”)
    • Act of 2008 Changes Affecting Administration
    • Worker, Retiree, and Employer Recovery Act of 2008 Changes Affecting Administration
    • Recordkeeping Concerns
    • Administering Communications
    • Roth Account Administrative Considerations
    • In-Plan Roth Rollovers
  • 17. Current Funding, Investment, Disclosure and Legal Issues with Governmental Defined Benefit Plans
    • Funding Issues with Public-Sector Pension Plans
    • Disclosure Issues with Public-Sector Pension Plan Costs
    • Investment Issues with Public-Sector Pension Plan Assets
  • 18. Fiduciary Duties to a Governmental Deferred Compensation Plan
    • Author’s Notes
    • Governing Law
    • Fiduciaries
    • Fiduciary Duties Generally
    • Using Plan Assets to Pay for Necessary Services
  • APPENDICES
    • Extracts from Relevant Code Sections
    • Income Tax Regulations
    • Model Rabbi Trust Provisions (Rev. Proc. 92-64)
    • Ineligible 457(f) and 409A Church Hospital Plan
    • Model State Enabling Statute
    • Specimen Top-Hat Statement
    • Employee Benefit Limits
  • TABLES
    • Internal Revenue Code
    • Treasury Regulations
    • Letter Rulings, Revenue Procedures, and Revenue Rulings
    • Notices and Announcements
    • Employee Retirement Income Security Act
    • Department of Labor Regulations and Advisory Opinions
    • Miscellaneous United States Code and Code of Federal Regulations Provisions
  • TABLE OF CASES

About the Authors

Gary S. Lesser

Gary S. Lesser, Esq., is the principal of GSL Galactic Consulting, located in Indianapolis, Indiana. Mr. Lesser maintains a telephone-based consulting practice providing services to other professionals and business owners. He is a nationally known author, educator, and speaker on retirement plans for individuals and smaller businesses. Mr. Lesser has broad technical and practical knowledge of both qualified and nonqualified retirement plans. Mr. Lesser is the technical editor and co-author of HSA Answer Book, SIMPLE, SEP, and SARSEP Answer Book, Life Insurance Answer Book for Qualified Plans and Estate Planning, Roth IRA Answer Book and Quick Reference to IRAs, all published by Wolters Kluwer Law & Business. Mr. Lesser is also the principal author and technical editor of The CPA’s Guide to Retirement Plans for Small Business Owners and the Advisor’s Guide to Health Savings Accounts, publications of the American Institute of Certified Public Accountants (AICPA). He has developed several software programs that are used by financial planners, accountants, and other pension practitioners to design and market retirement plans for smaller businesses. His two software programs—QP-SEP Illustrator™ and SIMPLE IllustratorSM—are marketed and distributed nationally. He has also been published in the EP/EO Digest, Journal of Taxation of Employee Benefits, Journal of Compensation and Benefits, Journal of Pension Benefits, Life Insurance Selling, Rough Notes, and NAPFA Advisor. Mr. Lesser is an associated professional member of the American Society of Pension Professionals & Actuaries (ASPPA). In 1974, Mr. Lesser started his employee benefits career with the Internal Revenue Service as a Tax Law Specialist/Attorney in the Employee Plans/ Exempt Organizations (EP/EO) Division. He later managed and operated a pension administration and actuarial service organization, was an ERISA marketing attorney for a national brokerage firm, and was a senior vice president/ director of retirement plans for several nationally known families of mutual funds and variable annuity products. Mr. Lesser graduated from New York Law School and received his B.A. in accounting from Fairleigh Dickinson University. He is admitted to the bars of the state of New York and the United States Tax Court.

Mr. Lesser also co-authored Basic Accounting Simplified. This book helps students of accounting to think through, understand, and master the more difficult issues that will be taught as their accounting education progresses. For more information, visit http://www.basicaccountingsimplified.com

David W. Powell

David W. Powell, Esq., is a partner in the law firm of the Groom Law Group, Chartered, Washington, D.C. Mr. Powell received his law degree from the University of Texas School of Law in 1982 and has practiced in the tax and employee benefits field in New Orleans, New York City, and Washington, D.C. He is a certified public accountant, and is a past president of the Washington Employee Benefits Forum. Mr. Powell works with tax and ERISA issues relating to all types of employee pension and welfare benefit plans, including qualified, nonqualified, 403(b), 457, church, governmental, health care, and flexible benefits plans. He is a member of the Employee Benefits Committee of the District of Columbia Bar and the Employee Benefits Committee of the Tax Section of the American Bar Association, and has authored a number of articles on employee benefits subjects. Recent publications include “Tax Aspects of Church Plans” and “Mergers and Acquisitions,”403(b) Answer Book (Aspen Publishers); “Pensions and Deferred Compensation for Financial Officers of Nonprofit Organizations,” Nonprofit Controllers Manual (Warren, Gorham & Lamont); “Design and Use of Section 457 Plans,” Journal of Deferred Compensation; “Tax Management Portfolio 372,” Church and Governmental Plans (BNA); and numerous others.

Peter J. Gulia

Peter Gulia, Esq., is the shareholder of Fiduciary Guidance Counsel, a Philadelphia law firm. After more than 21 years’ experience, before 2006, with one of America’s largest retirement-services businesses, Peter now counsels retirement plan sponsors, administrators, investment advisers, trustees, and other fiduciaries.

Since 1984, Peter has focused on the design, governance, fiduciary investment procedures, and administration of retirement plans; the design of investment-advice and investment-education programs; and lobbying on retirement-plans legislation and regulations. In addition to ERISA-governed plans, Peter has substantial experience with church plans and governmental plans, and with how laws beyond ERISA and the Internal Revenue Code affect retirement plans.

Although Peter concentrates his practice on retirement plans, other employee-benefit plans, and executive compensation, he continues to advise concerning an investment adviser’s fiduciary duties and compliance procedures under the Federal Investment Advisers Act and other laws. Peter also advises trustees of charitable trusts, and advises lawyers and certified public accountants about their professional conduct.

In addition to works with other publishers, Peter is a contributing author of Aspen Publishers’ 403(b) Answer Book, 457 Answer Book, Governmental Plans Answer Book, Roth IRA Answer Book, SIMPLE, SEP, and SARSEP Answer Book, and The Life Insurance Answer Book for Qualified Plans and Estate Planning.

Peter is a speaker for a broad range of continuing-professional-education programs including NAPFA, the National Association of Personal Financial Advisors, Pensions & Investments magazine, and Financial Research Associates. Peter is a member of the American Bar Association and the Philadelphia Bar Association, an Associated Professional Member of the American Society of Pension Professionals & Actuaries and its ASPPA Benefits Council of the Delaware Valley, and a member of the Philadelphia Compliance Roundtable.