When to amend a 457(b) governmental plan

Written by Linda Segal Blinn

Once an employer has established a 457(b) plan, that plan still requires ongoing maintenance to comply with plan design modifications and federal legislative and regulatory changes. The following overview is intended to help governmental employers understand the IRS due dates — both past and future — to keep their 457(b) plan documents compliant. 

When was a governmental employer first obligated to have a 457(b) plan document?

The Internal Revenue Service (IRS) 457(b) regulations in 2003 imposed a written plan requirement. Following those regulations, the IRS issued guidance providing that a governmental entity maintaining a 457(b) plan must adopt a written plan no later than December 31, 2005 in order to satisfy the 457 written plan requirement. 

A written 457(b) plan must include:

• All the applicable 457 regulatory provisions; and
• Any optional plan design features, such as unforeseeable emergency withdrawals, plan-to-plan transfers, and distributions of smaller accounts to eligible participants. 

The IRS notes that a 457(b) plan document must be adopted and exist before the first day of the month in which compensation is paid and a deferral can occur.

Is there an IRS pre-approved plan document program that employers may leverage?

No, the IRS does not maintain a pre-approved plan document program for 457(b) plans. A governmental employer looking for IRS confirmation that the 457(b) plan document provisions meet the regulatory requirements of a written 457(b) plan must apply to the IRS for a private letter ruling, requesting IRS review and approval of the 457(b) plan document.

Are 457(b) plans subject to remedial amendment cycles?

No, the IRS has not established remedial amendment cycles for 457(b) plans. 

If there is no remedial amendment cycle, when must a 457(b) plan document be amended for federal legislative and IRS regulatory changes? 

In general, absent a federal legislative provision, the deadline for amending a 457(b) plan for required federal legislative and IRS regulatory changes is the last day of the plan year in which the amendment is effective. Depending on the specific federal legislation, the IRS may have the authority to extend the deadline for amending the 457(b) plan beyond the end of the plan year in which the amendment is effective.

When must a 457(b) plan document be amended for plan design changes?

Absent a federal legislative provision, an amendment to a 457(b) plan to reflect plan design changes must be adopted by the end of the plan year in which the feature would first take effect.

What would be an example of a federal legislative provision that impacts an amendment for either a plan design change or to meet federal legislative and regulatory changes?

Federal law that provides for optional or mandatory plan amendments may include a deadline for when a plan must be amended. For example, SECURE Act 2.0 (the “Act”) permits a governmental employer to adopt a provision of the Act that is effective in 2023, but has until the later of December 31, 2029 or (if applicable) the first day of the first plan year beginning more than 180 days after the date of notification by the Secretary of the Treasury that the governmental 457(b) plan was administered in a manner that is inconsistent with the requirements of Internal Revenue Code Section 457(b) to amend its 457(b) plan to reflect the change.  

What else should a governmental employer know about maintaining its 457(b) plan document?

Governmental employers should keep in their permanent plan records:

• signed 457(b) plan documents (including completed adoption agreements, if applicable),
• signed plan amendments, and
• board resolutions approving the adoption, restatement, and amendment (as appropriate) of the 457(b) plan document.

In the event that the IRS audits the 457(b) plan, the governmental employer may need to provide proof that the plan document was timely and effectively adopted, including that the plan or amendment was signed by an authorized individual of that governmental entity.

Best practices

• Coordinate with your plan document provider to maintain and amend the 457(b) plan for plan design changes and for federal legislative/regulatory requirements.
• Authorize an individual to be responsible for timely adopting plan amendments to the 457(b) plan.
• Maintain the plan document, including amendments, in a secure location.

 

 

This article has been updated from its original version. 

 

Resources

• IRS Notice 2024-02:  https://www.irs.gov/pub/irs-drop/n-24-02.pdf