457 Answer Book, Eighth Edition (Posted on June 5, 2020 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

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, Eighth Edition has been updated to include:

  • Coverage of how a governmental plan might permit a still-working distribution when the participant is age 59½
  • Coverage of which plans’ fiduciaries may use a safe harbor to meet fiduciary responsibility in selecting an annuity insurer
  • Discussion of whether a participant may get a plan loan’s proceeds as a line of credit accessed through a bank card
  • Discussion of when a court might defer to a government plan administrator’s plausible interpretation of a statute or rule to possibly overcome a substantial-compliance doctrine
  • Discussion of why the IRS appears to take the position that employees hired after age 67½ (or 69 for persons attaining age 70½ after 2019) may not be able to fully utilize the contribution catch-up rule.
  • Discussion of the reduction in minimum age for allowable 457(b) distributions.
  • Coverage of whether a person’s refusal or failure to cash a plan’s payment alters a payer’s tax-reporting and withholding duties or a participant’s tax consequences.
  • Discussion of the new penalty exception for a qualified birth or adoption distribution.
  • Updated coverage of recent disaster relief.
  • Expanded coverage and new examples on the tax on excess tax-exempt organization executive compensation under Code Section 4960 imposed.
  • Discussion of when plan amendments are required in a 457(b) plan to allow for disaster distributions.
  • Discussion of whether a service provider’s or its employee’s disqualifying political contribution could result in undoing a service provider’s compensation.
  • Discussion of when a fiduciary may participate in deciding a matter that affects his or her own benefit under the deferred compensation plan.
  • Analysis of when a participant’s required beginning date turns on age 72, rather than on age 70½ Coverage of when a deceased participant’s remaining benefit must be distributed by the end of the tenth calendar year that follows the year of death.
  • Discussion of whether a plan’s fiduciaries can follow a state’s investment direction.
  • Why the tax law’s age of majority, before which a beneficiary’s ten-year minimum-distribution period does not begin, does not necessarily relate to a state’s definition of majority or adulthood.
  • Expanded coverage of whether 457 plan assets available to the creditor-spouse in a divorce proceeding.
  • New coverage of whether the 457 plan assets of a participant creditor of the United States in a garnishment proceeding are available under the Mandatory Victim Restitution Act.
  • Discussion of whether a trust is treated as an eligible designated beneficiary to avoid distributing a deceased participant’s remaining benefit by the end of the tenth calendar year that follows the year of the death.
  • When a plan’s fiduciary may rely on a safe harbor about lifetime-income disclosures.
  • Whether ERISA’s safe harbor for selecting an annuity insurer applies to a governmental plan.
  • Whether a governmental plan’s administrator must provide procedural due process.

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 Author

Gary S. Lesser

Gary has over 40 years of experience in ERISA and is nationally recognized as a leading expert in the field.

Gary is the principal of GSL Galactic Publishing, LLC, a pension and retirement benefit consulting practice. He has strong technical and marketing experience with qualified and non-qualified deferred compensation plans, programs and products, especially those used by individuals and smaller business owners.

Mr. Lesser is a former IRS Tax Law Specialists with the Employee Plans Division. He provides technical, legal, and marketing support services to financial consultants, insurance agents, pension practitioners, and financial institutions, as well as to employers who sponsor SEPs, SARSEPs, and SIMPLE plans. His practice includes the preparation of spreadsheets and schedules involving the EPCRS and VFCP correction programs. Gary is also the developer of several retirement plan software programs that are used for designing and illustrating contributions under integrated and non-integrated plans benefitting self-employed individuals. His programs, QP-SEP Illustrator™ and SIMPLE Illustrator®, are marketed and distributed nationally. He also provides retirement plan design and custom plan illustration and allocation services.

Gary is a contributing author and technical editor of the Health Savings Account Answer Book, Roth IRA Answer Book, SIMPLE, SEP, and SARSEP Answer Book, and the 457 Answer Book. He was also a contributing author and technical editor of Aspen Publishers Quick Reference To IRAs, and the Life Insurance Answer Book For Qualified Plans and Estate Planning, in addition to the CPA’s Guidebook to Retirement Plans for Small Businesses, the Adviser’s Guide to Health Savings Accounts, as well as several continuing professional education (CPE) programs for the American Institute of Certified Public Accountants (AICPA). Along with his father, he wrote and published Basic Accounting Simplified.