Governmental Section 457(b) Deferred Compensation Plan
Section 457(b) plans offered by state and local governmental entities generally operate similarly to 401(k) plans (Mutual of America's Governmental Section 457(b) plans accept salary deferrals only). For a municipal Section 457(b) plan, compensation that has been deferred is contributed to accounts maintained for employees. Amounts deferred under the plan, as well asany interest and investment earnings credited to them, are not subject to federal taxation until paid in cash to the participant. Furthermore, Code Section 457(g) provides that any Section 457(b) plan sponsored by a municipal entity is required to hold all plan assets in trust "for the exclusive benefit of participants and their beneficiaries." Therefore, as with qualified plans and unlike Eligible Section 457(b) Deferred Compensation plans for tax-exempt organizations (see below), assets for municipal plans are protected from bankruptcy and are for the sole use of participants and beneficiaries. Mutual of America provides a specimen Section 457(b) deferred compensation plan document.
Eligible Section 457(b) Deferred Compensation Plan
Section 457(b) plans for tax-exempt organizations, or "top hat" plans, are generally limited to a select group of management or highly compensated employees. To meet the exception under the Employee Retirement Income Security Act of 1974, as amended (or ERISA), for "top hat" plans, the plan must also be unfunded. Therefore, deferrals must remain an asset of the employer until they are distributed or made available. Consequently, assets could be vulnerable to creditors should the employer become insolvent. Mutual of America makes available a Specimen Section 457(b) plan for tax-exempt employers and a Flexible Premium Deferred Annuity (FPD), which serves as the employer-owned investment contract. Mutual of America's Eligible Section 457(b) plans accept salary deferrals and employer contributions.
Ineligible Section 457(f) Deferred Compensation Plan
Tax-exempt or, under certain circumstances, municipal employers may offer Section 457(f) plans. Like the Tax-Exempt Section 457(b) plan, the "top hat" definition of eligible employee is the same and only a select group of management or highly compensated employees are eligible to participate in this plan. Typically, the participant in this plan enters into an agreement with the employer to receive a benefit only after completing specified tasks and/or remaining with the employer for a specified period. Generally, the benefit is the amount that has been accumulated on the participant's behalf during the deferral period. In addition, like the Eligible Section 457 Deferred Compensation plan, assets in the plan are unfunded and remain assets of the employer, subject to the claims of general creditors, until they are distributed to participants. Mutual of America makes available the Flexible Premium Deferred Annuity (FPD), which serves as the investment contract. We do not make available a written plan or document which the employer must provide for the plan. Mutual of America's Ineligible Section 457(f) plans accept salary deferrals and employer contributions, although this arrangement is generally an employer-provided benefit.