Watch out for letters from the IRS if you have a 457(b) plan
The IRS plans to send letters out over the next year to seek compliance information about 457(b) plans sponsored by nonprofits. Nonresponse to these letters may be inviting an audit by the IRS.
457(b) plans are often referred to as “top hats” due to the fact that they may only be offered to high-wage earners, and until recently were more common in the government sector. Contributions to these plans are not affected by payments made into other retirement plans, such as 401(k)s and 403(b)s. An employee can contribute the maximum amount regardless of otherplans they may invest in.
Proactive organizations can use this as an opportunity to confirm that they are in compliance and that they are eligible to offer a 457(b) plan. In some cases, such as with quasi-tax-exempt entities, employers have found that they were not eligible to offer this plan to employees.
The IRS will look at several areas during a compliance check. AAF’s specialized Employee Benefit Plan Audit Division is always available to support you. Please contact your AAF Partner or you may contact Dave McManus, ERISA Division Leader, directly at 774-512-4014 or firstname.lastname@example.org with any questions regarding your retirement plans’ compliance with IRS regulations.