§ 457. Deferred compensation plans of State and local governments and tax-exempt organizations
(a)
Year of inclusion in gross income
(1)
In general
Any amount of compensation deferred under an eligible deferred compensation plan, and any income attributable to the amounts so deferred, shall be includible in gross income only for the taxable year in which such compensation or other income—
(b)
Eligible deferred compensation plan defined
For purposes of this section, the term “eligible deferred compensation plan” means a plan established and maintained by an eligible employer—
(2)
which provides that (except as provided in paragraph (3)) the maximum amount which may be deferred under the plan for the taxable year (other than rollover amounts) shall not exceed the lesser of—
(3)
which may provide that, for 1 or more of the participant’s last 3 taxable years ending before he attains normal retirement age under the plan, the ceiling set forth in paragraph (2) shall be the lesser of—
(4)
which provides that compensation will be deferred for any calendar month only if an agreement providing for such deferral has been entered into before the beginning of such month,
(6)
except as provided in subsection (g), which provides that—
(C)
all income attributable to such amounts, property, or rights,
shall remain (until made available to the participant or other beneficiary) solely the property and rights of the employer (without being restricted to the provision of benefits under the plan), subject only to the claims of the employer’s general creditors.
A plan which is established and maintained by an employer which is described in subsection (e)(1)(A) and which is administered in a manner which is inconsistent with the requirements of any of the preceding paragraphs shall be treated as not meeting the requirements of such paragraph as of the 1st plan year beginning more than 180 days after the date of notification by the Secretary of the inconsistency unless the employer corrects the inconsistency before the 1st day of such plan year.
(c)
Limitation
The maximum amount of the compensation of any one individual which may be deferred under subsection (a) during any taxable year shall not exceed the amount in effect under subsection (b)(2)(A) (as modified by any adjustment provided under subsection (b)(3)).
(d)
Distribution requirements
(1)
In general
For purposes of subsection (b)(5), a plan meets the distribution requirements of this subsection if—
(A)
under the plan amounts will not be made available to participants or beneficiaries earlier than—
(e)
Other definitions and special rules
For purposes of this section—
(1)
Eligible employer
The term “eligible employer” means—
(2)
Performance of service
The performance of service includes performance of service as an independent contractor and the person (or governmental unit) for whom such services are performed shall be treated as the employer.
(3)
Participant
The term “participant” means an individual who is eligible to defer compensation under the plan.
(4)
Beneficiary
The term “beneficiary” means a beneficiary of the participant, his estate, or any other person whose interest in the plan is derived from the participant.
(6)
Compensation taken into account at present value
Compensation shall be taken into account at its present value.
(7)
Community property laws
The amount of includible compensation shall be determined without regard to any community property laws.
(8)
Income attributable
Gains from the disposition of property shall be treated as income attributable to such property.
(9)
Benefits of tax exempt organization plans not treated as made available by reason of certain elections, etc.
In the case of an eligible deferred compensation plan of an employer described in subsection (e)(1)(B)—
(A)
Total amount payable is dollar limit or less
The total amount payable to a participant under the plan shall not be treated as made available merely because the participant may elect to receive such amount (or the plan may distribute such amount without the participant’s consent) if—
(i)
the portion of such amount which is not attributable to rollover contributions (as defined in section
411
(a)(11)(D)) does not exceed the dollar limit under section
411
(a)(11)(A), and
(ii)
such amount may be distributed only if—
(I)
no amount has been deferred under the plan with respect to such participant during the 2-year period ending on the date of the distribution, and
(II)
there has been no prior distribution under the plan to such participant to which this subparagraph applied.
A plan shall not be treated as failing to meet the distribution requirements of subsection (d) by reason of a distribution to which this subparagraph applies.
(B)
Election to defer commencement of distributions
The total amount payable to a participant under the plan shall not be treated as made available merely because the participant may elect to defer commencement of distributions under the plan if—
(10)
Transfers between plans
A participant shall not be required to include in gross income any portion of the entire amount payable to such participant solely by reason of the transfer of such portion from 1 eligible deferred compensation plan to another eligible deferred compensation plan.
(11)
Certain plans excluded
(A)
In general
The following plans shall be treated as not providing for the deferral of compensation:
(B)
Special rules applicable to length of service award plans
(i)
Bona fide volunteer
An individual shall be treated as a bona fide volunteer for purposes of subparagraph (A)(ii) if the only compensation received by such individual for performing qualified services is in the form of—
(C)
Qualified services
For purposes of this paragraph, the term “qualified services” means fire fighting and prevention services, emergency medical services, and ambulance services.
(D)
Certain voluntary early retirement incentive plans
(i)
In general
If an applicable voluntary early retirement incentive plan—
(I)
makes payments or supplements as an early retirement benefit, a retirement-type subsidy, or a benefit described in the last sentence of section
411
(a)(9), and
(II)
such payments or supplements are made in coordination with a defined benefit plan which is described in section
401
(a) and includes a trust exempt from tax under section
501
(a) and which is maintained by an eligible employer described in paragraph (1)(A) or by an education association described in clause (ii)(II),
such applicable plan shall be treated for purposes of subparagraph (A)(i) as a bona fide severance pay plan with respect to such payments or supplements to the extent such payments or supplements could otherwise have been provided under such defined benefit plan (determined as if section
411 applied to such defined benefit plan).
(ii)
Applicable voluntary early retirement incentive plan
For purposes of this subparagraph, the term “applicable voluntary early retirement incentive plan” means a voluntary early retirement incentive plan maintained by—
(12)
Exception for nonelective deferred compensation of nonemployees
(A)
In general
This section shall not apply to nonelective deferred compensation attributable to services not performed as an employee.
(B)
Nonelective deferred compensation
For purposes of subparagraph (A), deferred compensation shall be treated as nonelective only if all individuals (other than those who have not satisfied any applicable initial service requirement) with the same relationship to the payor are covered under the same plan with no individual variations or options under the plan.
(15)
Applicable dollar amount
(A)
In general
The applicable dollar amount shall be the amount determined in accordance with the following table:
For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2002
$11,000
2003
$12,000
2004
$13,000
2005
$14,000
2006 or thereafter
$15,000.
(B)
Cost-of-living adjustments
In the case of taxable years beginning after December 31, 2006, the Secretary shall adjust the $15,000 amount under subparagraph (A) at the same time and in the same manner as under section
415
(d), except that the base period shall be the calendar quarter beginning July 1, 2005, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.
(16)
Rollover amounts
(A)
General rule
In the case of an eligible deferred compensation plan established and maintained by an employer described in subsection (e)(1)(A), if—
(i)
any portion of the balance to the credit of an employee in such plan is paid to such employee in an eligible rollover distribution (within the meaning of section
402
(c)(4)),
(ii)
the employee transfers any portion of the property such employee receives in such distribution to an eligible retirement plan described in section
402
(c)(8)(B), and
(iii)
in the case of a distribution of property other than money, the amount so transferred consists of the property distributed,
then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.
(17)
Trustee-to-trustee transfers to purchase permissive service credit
No amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section
414
(d)) if such transfer is—
(18)
Coordination with catch-up contributions for individuals age 50 or older
In the case of an individual who is an eligible participant (as defined by section
414
(v)) and who is a participant in an eligible deferred compensation plan of an employer described in paragraph (1)(A), subsections (b)(3) and (c) shall be applied by substituting for the amount otherwise determined under the applicable subsection the greater of—
(A)
the sum of—
(i)
the plan ceiling established for purposes of subsection (b)(2) (without regard to subsection (b)(3)), plus
(ii)
the applicable dollar amount for the taxable year determined under section
414
(v)(2)(B)(i), or
(f)
Tax treatment of participants where plan or arrangement of employer is not eligible
(1)
In general
In the case of a plan of an eligible employer providing for a deferral of compensation, if such plan is not an eligible deferred compensation plan, then—
(A)
the compensation shall be included in the gross income of the participant or beneficiary for the 1st taxable year in which there is no substantial risk of forfeiture of the rights to such compensation, and
(B)
the tax treatment of any amount made available under the plan to a participant or beneficiary shall be determined under section
72 (relating to annuities, etc.).
(2)
Exceptions
Paragraph (1) shall not apply to—
(4)
Employment retention plans
For purposes of paragraph (2)(F)—
(A)
In general
The portion of an applicable employment retention plan described in this paragraph with respect to any participant is that portion of the plan which provides benefits payable to the participant not in excess of twice the applicable dollar limit determined under subsection (e)(15).
(B)
Other rules
(C)
Applicable employment retention plan
The term “applicable employment retention plan” means an employment retention plan maintained by—
(g)
Governmental plans must maintain set-asides for exclusive benefit of participants
(1)
In general
A plan maintained by an eligible employer described in subsection (e)(1)(A) shall not be treated as an eligible deferred compensation plan unless all assets and income of the plan described in subsection (b)(6) are held in trust for the exclusive benefit of participants and their beneficiaries.
(2)
Taxability of trusts and participants
For purposes of this title—
[1] So in original. A second closing parenthesis probably should precede the comma.