Top Hat 457(b) Plans Overview


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Top Hat 457(b) Plans Overview

  1. 1. T AX-EXEMPT 457(B) PL ANS OVERVIEWThis overview intends to provide an overview of federally imposed retirement plan rules as they relateto and affect tax-exempt employers sponsoring a 457(b) plan in order to benefit a select group ofmanagement. The laws of the employer’s state of domicile should also be consulted. This informationis general in nature and is not intended to replace the guidance of counsel on specific issues. Provision Tax-Exempt 457(b)Eligible Employers Tax-exempt employers desiring to provide a supplemental benefit to “top- hat” employees.Eligible Employees and Participation Participation must be limited to a “top-hat” group (i.e. a select group of management or highly compensated employees).Employee and Employer Contributions Employee deferrals and employer contributions combined must be limited to the lesser of $17,000 (indexed for inflation annually) or 100% of compensation. After-tax contributions are not permitted. Once invested, funds become assets of the employer and are subject to claims of the employer’s creditors.Catch-up Contributions Participants within 3 years of normal retirement age may make contributions up to twice the otherwise allowable annual amount to the extent of underutilized deferrals from prior years. Age 50 or older catch-up does not apply.Roth Contributions Not allowed.Section 402(g) Deferral Limit Does not apply. Instead, deferrals and employer contributions are limited by section 457(e) to a combined $17,000 for 2012. 401(k) or 403(b) contributions are not aggregated with 457(b) contributions for any reason.Section 415 Contribution Limit Does not apply. Instead, deferrals and employer contributions are limited by section 457(e) to a combined $17,000 for 2012.Section 401(a)(17) Compensation Limit Does not apply. Employer contributions do not need to be capped at any particular compensation level.Written Plan Document Required.Prototype Plan Document Program Not available.Determination Letter Not available.Ownership The employer owns 457(b) assets until they are paid to the participant so that contributions are not considered currently taxable to the participant. Assets must be subject to the claims of the employer’s general creditors.Vesting Employee contributions are vested immediately. Delayed vesting of employer contributions should be avoided so as not to exceed annual limits.Loans Not available.
  2. 2. Provision Tax-Exempt 457(b)QDROs QDRO rules apply.Distributable Events Participants may receive a distribution at severance from service, age 70½ or death. Unforeseeable emergency withdrawals may also be permitted.Distribution Options Lump-sum, annuity, installments as permitted by the plan.Early Withdrawal Penalty Not applicable.Rollovers Direct transfers may be permitted to and from other tax-exempt 457(b) plans. Rollovers to or from other plans are not permitted.Minimum Required Distributions The plan must meet the minimum distribution requirements of section 401(a)(9), which apply beginning on: 1) the later of the April 1 of the calendar year following the calendar year in which the employee attains age 70½ or the April 1 of the calendar following the calendar year in which the employee retires, or 2) the employees death.Taxability Contributions to a 457(b) plan are subject to FICA and FUTA tax in the year of deferral and income tax when the benefit is paid or made available, whichever comes first. Taxable amounts are reported on Form W-2.Nondiscrimination Testing Does not apply.410(b) Minimum Coverage Testing Does not apply.416 Top-Heavy Testing Does not apply.ERISA Coverage ERISA does not apply so long as participation is limited to the top-hat group, but it may form the basis of plan governance best practices.Form 5500 Filing Requirement The annual Form 5500 requirement does not apply, but employers are required to file a one-time exemption statement.Multnomah Group, Inc.Phone: (888) 559-0159Fax: (800)