A stronger future for your credit union.

What is it?

A 457(b) Eligible Deferred Compensation Plan is a statutorily created non-qualified plan available to "top hat" employees of tax-exempt employers. This plan offers the opportunity to increase net earnings after retirement by deferring a portion of pre-tax income from peak earning years.

How does it work?

A 457(b) Eligible Deferred Compensation Plan consists of a written agreement between the employer and each eligible executive to pay the benefits when the executive terminates, retires, becomes disabled or dies. Eligible executives can invest up to 100% of their annual pre-tax earnings to a maximum of $11,000 (as indexed) in a 457(b) plan.

A 457(b) plan offers executives the chance to reduce their net taxable income, which reduces their current tax liability as well.

These deferred amounts and their earnings are paid to the executives when they retire or terminate employment. In the meantime, the funds are the employer’s assets and subject to the claims of general creditors. Executives don’t pay federal income taxes on the deferred amounts until they receive the benefits. The employer and participating executive pay Social Security and Medicare taxes in the same year they defer their compensation.

What are the benefits?

• Another benefit plan added to existing retirement plans.
• Executives use their own pre-tax dollars to fund the plan -- the employer may also make contributions.
• Easy to establish.
• Low plan administration costs.
• Helps attract and retain valued executives.
• Earnings compound tax-deferred.
• Contributions are flexible.
• IRA contributions are not affected
• 401(k) deferrals need to be coordinated
• Benefits are paid when an executive is likely to be in a lower tax bracket. 

What are the rules concerning voluntary in-service distributions?

A participant who is an active employee of the employer will be permitted to receive a distribution of the total amount payable to the participant under the plan if the following requirements are met:

1. The total amount payable to the participant under the plan does not exceed $5,000 (or the dollar limit under Section 411(a)(11) of the Internal Revenue Code, if greater),
2. The participant has not previously received an in-service distribution of the total amount payable to the participant under the plan,
3. No amount has been deferred under the plan with respect to the participant during the two-year period ending on the date of the in-service distribution, and
4. The participant elects to receive the distribution.

How Does a 457(b) Catch Up Provision Work?

The participant must have deferred his or her compensation and the plan must have been in effect prior to using the Catch-Up Limitation. Read more.

457(b) Brochure  (1276 KB)

Funding 457 Plans

Executive Benefits Forms