10 - Section 457 Plans: Public and Private Sector Use Flashcards
To receive tax-preferred treatment in an ineligible plan, amounts deferred must be subject to a ___________. For a this to exist, a person’s right to receive deferred amounts must be conditioned on future performance of substantial services.
“substantial risk of forfeiture.”
Eligible employers generally use Section 457 plans in two ways:
- (1) As pure deferred compensation plans that allow participants to reduce their taxable salary in a manner similar to that of private sector 401(k) plans
- (2) As supplemental benefit plans that provide executives with supplemental retirement income.
During any or all of the three taxable years ending before the year the participant reaches normal retirement age, the “catch-up” provision is superseded by an amount equal to _____ the otherwise applicable limit, or, if less, the participant’s normal ceiling plus aggregate unused annual ceiling amounts for deferrals in prior years.
twice
For a 457 plan, must normal retirement age be specified in the plan to utilize the catch-up provision?
Yes (between 65 and 70 1/2)
must eligible section 457(b) plans receive internal revenue service approval in order to allow participants to defer income?
No. Unlike qualified plans, eligible Section 457(b) plans are not required to apply to the Internal Revenue Service for approval to operate.
ineligible plans place no limits on the amount of ______ made.
deferrals
Section 457 plans are ____________ plans available only to state and local governmental employers and nongovernmental organizations exempt from tax under Internal Revenue Code Section ____.
- nonqualified deferred compensation
- 501
generally states that an economic benefit results when an economic or financial benefit, even though not in cash form, is provided to an employee as compensation, such as when an employee receives beneficial ownership of amounts placed with a third party, or when assets are unconditionally and irrevocably paid into a fund to be used for the employee’s sole benefit.
doctrine of economic benefit
The following deferred compensation plans of state and local government and tax-exempt employers generally are not subject to Section 457 restrictions if certain conditions are met: (5)
- Nonelective deferred compensation of nonemployees
- Church and judicial deferred compensation plans
- Nongovernmental tax-exempt employer deferred compensation plans
- Nonelective governmental employer deferred compensation plans that met certain conditions
- Collectively bargained deferred compensation plans.
Section 457 plans are available only to (2)
- state and local government employers
- nongovernmental organizations exempt from tax under Internal Revenue Code (IRC) Section 501.
Eligible Section 457 plans are utilized by state and local governmental employers to provide _____ opportunities to their employees. Without these plans, state and local governmental employees would not have the same opportunities as those provided by Section 401(k) plans and Section 403(b) plans
salary deferral
In , _______ the employer pays an additional benenfit (sometimes based on a qualified retirement plan benefit formula), without reducing the employee’s present compensation, raise or bonus.
supplemental benenfit plans
generally states that income, although not necessarily received in hand by an individual, is considered received and, therefore, currently taxable when it is credited to an account or set aside so it may be drawn upon at any time and amounts receivable are not subject to substantial limitations or restrictions
the doctrine of constructive receipt
Unlike most types of retirement plans, a Section 457 plan can be offered on a _______ basis with participation limited to only a few employees or even to a single employee.
discriminatory
In _________, employees enter into an agreement with their employer to reduce present compensation or to forgo a raise or bonus in return for the employer’s promise to pay bene ts at a future date.
pure deferred compensation plans