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The 457 plan is a type of nonqualified, [1] [2] tax advantaged deferred-compensation retirement plan that is available for governmental and certain nongovernmental employers in the United States. The employer provides the plan and the employee defers compensation into it on a pre tax or after-tax (Roth) basis.
Section 409A: Inclusion in gross income of deferred compensation under nonqualified deferred compensation plans ... Subchapter E: Accounting Periods and Methods of Accounting (§ 441–§ 483) ... Part II: Methods of Accounting (§ 446–§ 475) Subpart B: Taxable Year for Which Items of Gross Income Included (§ 451–§ 460) ...
Section 409A was enacted, in part, in response to the practice of Enron executives accelerating the payments under their deferred compensation plans in order to access the money before the company went bankrupt, and also in part in response to a history of perceived tax-timing abuse due to limited enforcement of the constructive receipt tax ...
Deferred compensation is a way for employees to reduce their tax burden while ensuring their economic security in their golden years. Deferred compensation plans with a long vesting period are ...
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Deferred compensation is only available to employees of public entities, senior management, and other highly compensated employees of companies. Although DC is not restricted to public companies, there must be a serious risk that a key employee could leave for a competitor, and deferred comp is a "sweetener" to try to entice them to stay.
Deferred compensation plans in the US often have the benefit of employers' matching all or part of the employee contribution. In the US, Internal Revenue Code section 409A regulates the treatment for federal income tax purposes of “nonqualified deferred compensation”, the timing of deferral elections and of distributions. [26]
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