IRS Updates Info on 457(b) Written Plan Requirements

The IRS has updated the information it provides concerning written plan requirements for 457(b) deferred compensation plans. 

Generally, for years beginning after Dec. 31, 2001, an eligible deferred compensation plan under Code Section 457(b) must meet written plan document requirements. 

In its Issue Snapshot concerning 457(b) plan written plan requirements, the IRS reminds that:

• A state or its political subdivisions, agencies or instrumentalities, or any other organization that is otherwise tax-exempt under the Internal Revenue Code, may offer a 457 plan. 
• Churches or church-controlled organizations, as defined in Coe Section 457(e)(13), may not sponsor eligible deferred compensation plans.
• An eligible 457(b) plan must be a written plan that is maintained, in form and in operation, in accordance with requirements of Section 457 and Treas. Reg. §1.457-4 through 1.457-10. 
• The plan must be adopted and the plan document exist before the first day of the month in which the compensation is paid or made available in order to provide that compensation has been properly deferred by salary reduction, and an agreement providing for the deferral must have been entered into before the deferral.
• Certain provisions are optional, such as the age 50 catch-up limit, the special 457 catch-up limit, distributions for unforeseeable emergences, loans, plan-to-plan transfers, additional deferral elections, acceptance of rollovers and involuntary distributions of smaller accounts. However, the plan document must contain provisions for any of the options that the employer wishes to include in the plan.

Audit Tips

The IRS notes that an examination agent must review plan documents to ensure it was adopted in a timely manner and is in compliance with applicable regulations. 

The IRS cautions that a plan document should be reviewed for subsequent law changes such as Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) effective for years beginning after Dec. 31, 2007 and which applies only to state and local government plans. And it warns that a plan document failure may cause an operational failure.

Correcting Errors

The IRS notes that under Section 4.09 of Revenue Procedure 2021-30, it will accept submissions relating to 457(b) plans on a provisional basis outside of the Employee Plans Compliance Resolution System (EPCRS) through standards that are similar to EPCRS, However, it says, a governmental 457(b) may be able to self-correct failures under Treas. Reg. §1.457-9.