SECTION 2. BACKGROUND AND

GENERAL INFORMATION

.01 Section 457 applies to nonqualified deferred compensation plans established by State and local government and tax-exempt employers. Under § 457, eligible employers may establish three different types of plans or arrangements: (1) eligible plans established by State and local government entities (eligible § 457(b) governmental plans); (2) eligible plans established by other tax-exempt entities (eligible § 457(b) plans of tax-exempt entities); and (3) ineligible plans under § 457(f). Under the last sentence of § 457(b), the Commissioner may notify an eligible § 457(b) governmental plan that it is administered in a manner that is inconsistent with § 457(b).

.02 Final regulations under § 457 (T.D. 9075, 2003–39 I.R.B 608) were published in the Federal Register (68 FR 41230) on July 11, 2003. These regulations replaced existing final regulations that were published in the Federal Register on September 27, 1982 (47 FR 42335) (T.D.7836, 1982–2 C.B. 91). The final regulations provide guidance for complying with the changes made to § 457 by the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107–16 (EGTRRA), the Taxpayer Relief Act of 1997, Pub. L. No. 105–34 (TRA ’97), and the Small Business Job Protection Act of 1996, Pub. L. No. 104–188 (SBJPA). The regulations also provide guidance on many nonEGTRRA issues, such as the tax treatment of excess deferrals, plan loans, plan terminations, and unforeseeable emergencies.

.03 Sections 615, 631, 632, 634, 635, 641, 646, 647, and 649 of EGTRRA made changes to eligible § 457(b) governmental plans, including increases in elective deferral limits, repeal of the rules coordinating the § 457 plan limits with contributions to certain other types of plans, catch-up contributions for individuals age 50 or over, extension of qualified domestic relation order rules to § 457 plans, rollovers to and from various types of eligible retirement plans, § 403(b) contracts

and individual retirement arrangements (IRAs), and transfers to purchase permissive service credits under governmental defined benefit plans.

.04 Rev. Proc. 98–41, 1998–2 C.B. 135, provided model amendments that may be used for eligible § 457(b) governmental plans to reflect the revisions made to § 457 by the SBJPA, including the requirement that eligible § 457(b) governmental plans hold all assets and income in trust for the exclusive benefit of participants and beneficiaries.