Deferred Compensation Plan

Definition

Also referred to as a 457 plan, is a retirement plan established by a state or local government, a nongovernmental unit of tax-exempt organization, or a tax-exempt non-church entity for its employees.

This does not include plans such as qualified plans, 403(b) plans, 403(a) plans and IRAs maintained by those organizations, as those are not considered 457 plans.

Eligible 457 plans are referred as 457(b) plans and ineligible 457 plans are referred to as 457(f) plans.

Referring Cite

IRC §457(b), §457(e)(1) and § 457(f)(1)

Additional Helpful Information

Individuals may defer up to 100% of their Compensation up to the dollar limit that is in effect for the year to the plan. Individuals who reach age 50 by the end of the year may defer additional amounts referred to as ‘Catch-up’ contributions. The dollar limits for 2002 to 2007 are as follows:

Year

Salary deferral limit

Catch-up contribution limit

2002

$11,000

$1,000

2003

$12,000

$2,000

2004

$13,000

$3,000

2005

$14,000

$4,000

2006

$15,000

$5,000

2007

$15,500

$5,000

2008

$15,500

$5,000

2009 $16,500 $5,500

Potential COLA increase in increments of $500 for tax years beginning 2006 for salary deferrals and catch-up contributions.

Employers may choose to make Matching Contributions to the accounts of employees who make salary deferral contributions. However, the aggregate contributions to a participant’s account cannot exceed the limits indicated in the chart above.

Contributions to 457(b) plans are tax-deferred

Contributions to 457(f) plans are not tax-deferred, unless there is a substantial risk of forfeiture