Q. A county sponsors a 457(b) governmental plan and is asking questions concerning eligibility of those in elected positions to participate. Is there guidance concerning whether they can participate and receive any future discretionary matching dollars?
I do not see any exclusions for elected officials in the 457(b) regulations provided these employees receive W2 or 1099 income. I assume allowing them to defer their own dollars would be ok, but maybe there is state law that restricts employer contributions. Am I correct to refer them to their local tax/legal counsel to review state law?
A. You are correct. An “employee” for purposes of governmental 457 plans is: “Each natural person, whether appointed or elected, who is employed by the employer as a common law employee, excluding any employee who is included in a unit of employees covered by a collective bargaining agreement that does not specifically provide for participation in the plan.”
Of course, they need to receive compensation from the employer, as you pointed out. Typically, state laws may deal with the types of investments permitted but not the type of contributions. But it is always a good idea to check state law, so I agree with that as well.