457b and 457f Plans

457(b) Plans

                A 457(b) plan is a deferred compensation plan named after Section 457(b) of the Internal Revenue Code. These plans share certain features with other employer-sponsored retirement plans in that participants may defer a portion of their compensation, subject to applicable annual limits. However, 457(b) plans also have several unique characteristics. Under a 457(b) plan, eligible employees may defer compensation on a pre-tax basis, generally postponing taxation until distributions are received. Participants may elect to receive distributions over a period of time following separation from service or retirement, subject to the terms of the plan and applicable tax rules. Like many employer-sponsored retirement plans, 457(b) participants are generally subject to required minimum distribution (RMD) rules.

               There are several important differences between governmental 457(b) plans and those sponsored by certain tax-exempt organizations:

• Assets in a governmental 457(b) plan may generally be rolled over to an IRA or other eligible retirement plan. However, distributions from a governmental 457(b) plan are not generally subject to the 10% federal early withdrawal penalty that may apply to distributions from an IRA before age 59½. This penalty exception is generally lost once assets are rolled to an IRA.
• Assets held in a governmental 457(b) plan are generally held in trust for participants and are generally protected from the claims of the employer's creditors.
• Participation in a nongovernmental 457(b) plan is generally limited to a select group of management or highly compensated employees, whereas governmental employers may make a 457(b) plan available to a broader group of employees.

457(f) Plans

                  A 457(f) plan is a nonqualified deferred compensation plan that may be offered by certain tax-exempt and governmental employers to a select group of management or highly compensated employees. Unlike many other retirement plans, there is generally no statutory limit on the amount of compensation that may be deferred. To avoid current taxation, however, the participant's benefit must remain subject to a "substantial risk of forfeiture." A substantial risk of forfeiture means that although the participant has a legally binding right to the deferred compensation, the benefit generally remains contingent upon satisfying specified conditions established by the employer. Common vesting events may include continued employment through a specified date, retirement, separation from service, disability, a change in control, or other events permitted under the plan.

                When the substantial risk of forfeiture lapses and the benefit becomes vested, the value of the benefit generally becomes taxable as ordinary income, even if payment is made at a later date or over a period of time. In addition, 457(f) plan assets generally are not eligible for rollover to an IRA or another eligible retirement plan.

Unlike many qualified retirement plans, 457(f) plans are generally not subject to required minimum distribution (RMD) rules, and distributions are generally not subject to the 10% federal early withdrawal penalty that may apply to certain other retirement accounts before age 59½.