| Key Provision | Prior Regulations for Section 457 Plans | EGTRRA Revised Regulations for Section 457 Plans | Required Changes by Plan Sponsor |
| Contribution Limits | Annual maximum contribution limits are capped at $8,000 per year or 33 1/3% of compensation. | Annual maximum contribution limits are increased. | Plan amendment. |
| 50+ Catch-up Option | Standard Catch-up available in the three years prior to Normal Retirement Age. | Standard Catch-up available in the three years prior to Normal Retirement Age. New 50+ option is available for participants over 50 years of age to contribute an additional flat amount into their Section 457 plan. | Plan amendment. Your payroll system may need to be updated to account for the new 50+ catch-up deferrals. |
| Rollovers | Rollovers may be permitted to and from eligible Section 457 plans. Rollovers to other qualified plans are not allowed. | Rollovers from your plan to other eligible or qualified plans are a required amendment to your plan. As a Plan Sponsor, you decide if rollovers from other eligible 457 or qualified plans will be accepted by your plan. | Plan amendment. |
| Distributions from the plan | Upon separation from service, participants must make an irrevocable election as to the timing and amount of payment they wish to receive from the plan. These payments may not be in substantially increasing payments.
| Upon separation from service, participants are no longer required to make their election of payments. Their decisions are now revocable. Participants may elect any income stream, regardless of the amount of increase in payments. | Plan amendment. |
| Tax Withholding | Distribution payments to participants are taxed as wages (W2) when they are made. | Participant distribution payments will now be reported as 1099R payments. |
Your administrator should automatically make this change. |
| Purchase Service Credits | Funds from a Section 457 plan are not available to fund the purchase of service credits. | Section 457 plan assets may be used to purchase service credits in their Defined Benefit Plan. | Plan Amendment. |
| Minimum Required Distributions | Participants over age 70 1/2 must begin to receive minimum distributions from the plan. Participants who wish to preserve their estate may be forced to take a higher distribution amount to meet their required minimum distribution (based on life expectancy tables). | Participants over age 70 1/2 are still required to receive minimum distributions from the plan. Life expectancy tables and beneficiary provisions have been modified - which may result in participants being able to preserve more of their estate through lower minimum distribution amounts. | Your plan may need to be modified to reflect these regulatory changes. Communications to those participants affected by these changes may be beneficial. |
