457 b Pension Plan Rules and Requirements

The 457(b) pension plan is a type of retirement plan offered by tax-exempt organizations, such as hospitals, universities, and museums.

To be eligible for a 457(b) plan, you must work for a tax-exempt organization that offers the plan, and you must be a U.S. citizen or resident alien.

The plan is funded by employee contributions, and in 2020, employees can contribute up to $19,500 to the plan, with an additional $6,500 catch-up contribution allowed for those 50 or older.

A 457 b pension plan is a type of retirement savings plan that's designed for government employees and tax-exempt organizations. It's a valuable tool for building a secure financial future.

Contributions to a 457 b plan are made with pre-tax dollars, reducing your taxable income for the year. This can lead to significant tax savings over time.

The plan allows you to contribute up to a certain percentage of your income each year, and the funds are invested in a variety of assets to grow your account balance.

To be eligible for a 457(b) plan, you must be a nongovernmental plan participant, and your employer must limit the plan to a group of highly compensated employees. This is because ERISA legislation requires nongovernmental plans to be limited to a specific group of employees based on an ascertainable standard set by the employer.

You can enroll in a 457(b) plan online, depending on your plan's rules, and may also be able to change your contribution amounts online.

A 457(b) plan is occasionally referred to as a "top hat" plan due to this limitation to higher-compensation employees.

Eligible plans have certain rules to follow. The Employee Retirement Income Security Act (ERISA) legislation requires nongovernmental plans to be limited to a group of more highly compensated employees.

A specific compensation level is not specified by ERISA, but it must be based on an ascertainable standard set by the employer. The highly compensated limit for 401(k) discrimination testing, which is $125,000 a year for 2019, is likely acceptable for 457(b) plans.

Restricting the plan to directors or officers is also an option. This is because 457(b) plans are sometimes referred to as "top hat" plans due to this limitation to higher-compensation employees.

You can enroll in a 457(b) plan online, and depending on your plan's rules, you may also be able to change your contribution amounts online.

To enroll, you'll need to contact your plan administrator for additional information, especially if you're looking to take advantage of the higher catch-up contribution limit for employees aged 60, 61, 62, and 63.

You can enroll in a 457(b) plan for your employees by contacting us.

To enroll online, you'll need to visit the Virginia Retirement System website, Deferred Compensation Plan.

The enrollment process typically takes up to 2 weeks from the time your deduction is taken from your check until the time the vendor receives the funds for investment.

You must enroll in the plan through your chosen vendor before contributions from your paycheck may be taken.

When it comes to governmental and nongovernmental plans, there's a key difference to understand. Governmental plans were initially under 457(g), but those plans are no longer created.

Most governmental and nongovernmental plans are 457(b) plans. This is the main type of plan that people are familiar with.

Nongovernmental plans have some restrictions that governmental plans don't. For instance, money deferred into nongovernmental 457 plans can't be rolled into other types of tax-deferred retirement plans.

Nongovernmental plans are unique in that the money deferred into them remains the property of the employer. This is a key distinction from other types of plans.

Here are some key differences between governmental and nongovernmental plans:

It's worth noting that nongovernmental plans have specific rules about when funds can be distributed.

You can participate in both a TSA (403(b)) and a Deferred Compensation (457(b)) plan, which is great news for those looking to save more for retirement. This allows you to take advantage of both plans' benefits.

Participating in a 403(b) does not prevent your ability to also participate in the 457(b). You can enroll in both plans, but keep in mind that you'll only receive one employer cash match, which may be designated in totality to either the 403b or 457b.

You may max out your annual contribution limit in both the 403b and 457b plans, giving you more flexibility in your retirement savings strategy. This is especially useful for those with multiple income sources or those who want to save more for retirement.

Here's a quick rundown of the key points:

By participating in both plans, you can take advantage of the benefits of each, including tax-deferred growth and potential employer matching contributions.

You have the flexibility to participate in both a pre-tax plan and a post-tax Roth plan, or stick to one or the other. You can choose which option works best for you.

You can combine contributions in both plans, but be aware that you can't exceed the maximum annual contribution. This is a hard limit to keep in mind when planning your finances.

If you're interested in learning more about the Roth Plan, you can get information from a vendor financial advisor or by contacting the Human Resources Office.

You can contribute up to 100% of your salary on a pretax basis to your 457(b) plan, up to the maximum IRS contribution limit.

Special catch-up provisions may also be available, so it's a good idea to talk to your financial professional for more information.

You are always 100% vested in employee contributions and rollover contributions, plus any earnings they generate, which means you own those benefits outright.

You can contribute up to 100% of your salary on a pretax basis to a 457(b) plan, up to the maximum IRS contribution limit.

The maximum contribution limit for 2025 is $23,500.

You may stop, increase or decrease your contributions to a 457(b) plan by giving notice to your employer, and your employer will change your contribution election as soon as administratively feasible after receiving your request.

Elective contributions to a 457(b) plan may be suspended at any time, but to resume your contribution, you must complete a new Salary Reduction Agreement form or 457(b) online enrollment.

There are specific limitations on the amount of money you may set aside in a calendar year for a 457(b) plan, imposed by sections of the IRC and established on a calendar year basis.

Alternative limits are available for those who qualify to exceed the general limit on deferrals, including a "catch up" provision for employees with 15 or more years of service with the same employer, allowing them to defer an additional amount over a five-year period.

Vesting is a crucial concept in understanding your benefits from a plan. You are always 100% vested in employee contributions.

Employee contributions are a key part of your benefit package, and you own them outright. Rollover contributions from other plans also become yours immediately, along with any earnings they generate.

You can create a suitably diversified portfolio with the mutual funds available in your 457(b) plan, which will help match your personal retirement time horizon, investment risk tolerance, and investment preferences.

These funds offer flexibility and can be viewed along with their historical performance on the University System of Georgia 457(b) plan website.

To get a better understanding of the investment options, you can access the prospectus, which contains essential information about the respective investment companies.

You can also choose from a wide range of options offered by your employer's plan, including conservative stable value funds to aggressive stock funds, and build a diversified portfolio of various funds.

MissionSquare Retirement's Guided Pathways services provide plan employees with access to financial consultants and Certified Financial Planner professionals to help with investment decisions.

The key benefit of a 457(b) plan is that the savings are tax-deferred, reducing taxable income and growing tax-deferred until withdrawal.

You have a wide range of investment choices in your retirement plan, which can help you create a diversified portfolio that matches your personal needs.

The University System of Georgia 457(b) plan participants have access to a list of mutual funds with their historical performance, which can be viewed online.

These funds offer a way to manage risk and potentially grow your retirement savings over time.

To get a better understanding of each fund, you can view or print a prospectus, which contains essential information about the investment companies, including their investment objectives, risks, charges, and expenses.

You can request a copy of the prospectus by calling 1.800.428.2542 if you prefer.

MissionSquare Retirement's Guided Pathways services provide plan employees with access to financial consultants and Certified Financial Planner professionals for specific investment advice.

Employees can choose from a wide range of options in their 457(b) plan, including conservative stable value funds and aggressive stock funds.

You can build a diversified portfolio by selecting various funds, or rely on a simple yet diversified target-date or target-risk fund.

A 457(b) plan offers tax-deferred savings, reducing taxable income and growing tax-free until withdrawal.

The key benefit for employees is that contributions are made on a pre-tax basis, which can be a huge advantage for those looking to save for retirement.

Employees over age 50 can contribute on top of the limit for the year, making it easier to maximize contributions and increase savings over time.

457(b) plans also offer a Pre-Retirement Catch-Up Provision, allowing participants aged 60, 61, 62, and 63 to contribute an additional amount on top of the normal contribution limit.

Designating beneficiaries for your 457(b) account is crucial, ensuring your assets are paid per your wishes and avoiding potential costs and delays of probate.

Non-spouse beneficiaries can also receive additional tax benefits by being designated as beneficiaries, making it a smart move to plan ahead.

You can withdraw money from your 457(b) plan in certain situations, including death, disability, severance from employment, retirement, and unforeseeable emergencies.

Withdrawals are generally taxable, and you may be subject to a 10% penalty tax if you withdraw money before age 59½, unless you meet certain exceptions.

The plan allows you to take a one-time withdrawal if your account balance is $5,000 or less and you haven't made any deferrals or taken prior withdrawals in the past two years.

To request a withdrawal, you can log in to your account to see if your employer allows online withdrawals, or you can complete and submit the forms in the 457(b) Plan Benefit Withdrawal Packet.

You can also take a loan from your 457(b) plan, but the amount you can borrow is limited to the lesser of 100% of your vested account balance up to $10,000, or 50% of your vested account balance for loans in excess of $10,000, not to exceed $50,000.

The minimum loan amount is $1,000, and you must repay the loan within five years, unless you're using the loan to purchase your principal residence.

Here are the details on the loan repayment terms:

You'll also need to pay interest back to your account, with an interest rate of the Prime Rate plus 1%.

Taxation on 457(b) withdrawals is generally taxable, but you won't face a 10% penalty tax if you take distributions prior to age 59½, unlike other retirement accounts. However, if you withdraw assets transferred from other retirement accounts, the penalty tax may still apply.

You'll need to review the Special Tax Notice Regarding Plan Payments for detailed tax information. Keep in mind that the tax implications can be complex, so it's essential to understand the rules and regulations surrounding your 457(b) plan.

Required minimum distributions (RMDs) apply to 457(b) retirement accounts, and they begin when you reach 73 and are no longer working for that employer. The plan administrator will typically notify you of your RMDs, and failing to withdraw the required amount can result in penalties.

Tax deferral is a powerful tool for saving money on taxes. You can defer taxes on your 457(b) plan contributions, which means you won't have to pay taxes on the money until you withdraw it.

By contributing to a 457(b) plan, you can reduce your take-home pay, but you'll also reduce your federal withholding tax. According to a comparison, deferring $150 to a TSA plan can save you $42 in federal withholding taxes.

Here's a breakdown of how tax deferral works:

With tax deferral, you can keep more of your hard-earned money in your pocket. By contributing to a 457(b) plan, you can reduce your taxes and build a nest egg for retirement.

The RMD Rule is a crucial aspect of retirement planning. An RMD, or required minimum distribution, is the minimum amount you must withdraw annually from your 457(b) retirement account in retirement.

RMDs begin when you reach 73 and are no longer working for that employer. It's essential to keep track of this, as there are penalties for not withdrawing the required amount.

The retirement plan administrator will typically inform you what your RMDs are. This is usually done to ensure you're in compliance with the rule.

Failing to withdraw the required amount can result in penalties. It's up to you to stay on top of this and make the necessary withdrawals.