457(b) Plans
Complements an existing 403(b) plan by providing additional retirement savings opportunities for employees.
457(b) Non-Governmental Deferred Compensation Plan
Welcome to our comprehensive guide on the 457(b) non-governmental plan, an invaluable tool for tax-exempt organizations looking to provide retirement benefits for their employees, particularly key management personnel. In this article, we’ll explore what a 457(b) plan entails, its advantages for tax-exempt entities, and how it can be leveraged to attract and retain top talent within your organization.
Understanding the 457(b) Plan
The 457(b) plan, often referred to as a “top-hat” plan, functions as a deferred compensation vehicle that tax-exempt organizations under IRC 501(c) or local governments can sponsor. Unlike other retirement plans, such as the 401(k) or 403(b), the 457(b) offers unique advantages, particularly for key employees and select management groups. One of its standout features is that contributions to a 457(b) plan do not count towards the standard IRS limits. This means executives can potentially double their retirement savings by contributing to both a 403(b) and a 457(b), effectively maximizing their retirement nest egg.
Quick Facts
- Exclusive Eligibility: The 457(b) non-governmental plan is accessible only to highly-compensated employees and select management groups within tax-exempt organizations or local governments.
- Double Contribution Potential: Participants can contribute to both a 457(b) plan and another retirement account, such as a 403(b) plan, potentially doubling their retirement savings.
- Tax-Deferred Growth: Contributions to a 457(b) plan grow tax-deferred, allowing for potentially accelerated investment growth over time, providing participants with enhanced retirement savings opportunities.
How it Operates
Participation in a 457(b) plan involves electing a percentage of one’s salary to contribute, with the employer deducting these contributions through payroll. In many cases, the employer may also offer matching contributions. It’s crucial to note that the combined contributions from both employee and employer cannot exceed the specified IRS limit.
Why Choose a 457(b) Plan?
The addition of a 457(b) plan can help enhance your ability to retain and attract executives and key employees. And because you’re nonprofit, your 457(b) is not subject to ERISA reporting and disclosure requirements or nondiscrimination testing.
Advantages for Employers
Implementing a 457(b) plan offers numerous advantages for employers, including:
1. Funding sourced from salary payments, employer matching contributions, and employer nonelective contributions.
2. Facilitating recruitment and retention of key talent.
3. Empowering employees to prepare effectively for retirement, fostering long-term loyalty and engagement.
Benefits for Key Management Employees
1. Competitive Compensation Packages: Offering a 457(b) plan can enhance the overall compensation package for key management employees, making it more attractive compared to opportunities in the private sector.
2. Tax Deferral: Key management personnel can take advantage of tax-deferred growth on their contributions and earnings, allowing their retirement savings to potentially grow more quickly over time.
3. Supplemental Retirement Income: For highly compensated executives, a 457(b) plan can serve as a valuable supplement to other retirement savings vehicles, such as 403(b) plans, helping to ensure a comfortable retirement lifestyle.
Supplementing an Existing 403(b) Plan
A 457(b) plan can complement an existing 403(b) plan by providing additional retirement savings opportunities for employees. By offering both types of plans, tax-exempt organizations can cater to the diverse needs and preferences of their workforce. Employees may appreciate the flexibility and customization options afforded by having access to both types of retirement plans.
How NESA Can Help
NESA specializes in serving nonprofits, ensuring compliance with sector-specific regulations. We streamline the process of implementing 457(b) plans, handling everything from design to documentation. Our expert team proactively manages plans to ensure ongoing compliance and simplicity for organizations.
Conclusion
A 457(b) non-governmental plan offers significant benefits for both tax-exempt organizations and their key management employees. By providing a tax-advantaged retirement savings vehicle, organizations can attract and retain top talent while also helping employees achieve their long-term financial goals. With careful planning and implementation, a 457(b) plan can be a valuable tool in building a competitive compensation package and fostering financial security for employees within the tax-exempt sector, especially when used in conjunction with existing retirement plans like the 403(b).
Find the Right Plan for Your Business or Nonprofit
NESA Plan Consultants (NESA) is a retirement plan provider working with advisors, recordkeepers and CPAs to offer customized 401(k), 403(b) and 457(b) plans. NESA offers modern solutions and provides resources to employers and employees to secure a brighter financial future.