Issue Snapshot – Section 457(b) Plan of Governmental and Tax-Exempt Employers -- Catch-Up Contributions


This issue snapshot discusses catch-up contributions under an IRC Section 457(b) plan. State and local governments and tax-exempt organizations are eligible to maintain an IRC Section 457(b) plan. You can find the rules for eligible deferred compensation plans established by eligible employers in IRC Section 457(b). Annual deferrals participants make to an IRC Section 457(b) plan are limited by the basic annual limitation unless a catch-up provision applies, in which case they’re higher. IRC Section 457(b) plans may permit special 457 catch-up contributions during the last three taxable years before a participant’s normal retirement age. Governmental IRC Section 457(b) plans may also permit age 50 catch-up contributions.

IRC Sections and Treas. Reg.

Resources (Court Cases, Chief Counsel Advice, Revenue Rulings, Internal Resources)



Governmental and tax-exempt Section 457(b) plans must require that annual deferrals can’t exceed the basic annual limitation under IRC Section 457(b)(2). Annual deferrals under Treas. Reg. Section 1.457-2(b)(1) include:

  • salary reduction contributions and
  • nonelective employer contributions.

Contributions are considered as annual deferrals in the later of:

  • the taxable year of the deferral, or
  • the year in which the deferral is no longer subject to a substantial risk of forfeiture.

The basic annual limitation, as defined in IRC Section 457(b)(2), is the lesser of:

  • the applicable dollar amount, or
  • 100 percent of the participant’s includible compensation.

    The applicable dollar amount is $15,000, adjusted for cost-of-living increases. See IRC Section 457(e)(15). For 2021 the amount is $19,500. See Cost-of-Living Adjusted Limits chart.

An IRC Section 457(b) plan may provide for certain deferrals in excess of the basic annual limitation.

  • Under IRC Section 457(b)(3) an IRC 457(b) plan of a governmental or tax-exempt organization may permit participants close to normal retirement age to make a special 457 catch-up contribution.
  • Under IRC Section 457(e)(18) and IRC Section 414(v) a governmental Section 457(b) plan may permit participants age 50 and older to make some additional deferrals.

Special 457 catch-up

A governmental or tax-exempt IRC Section 457(b) plan, under the special 457 catch-up, may allow a participant to have an increased basic annual limitation during their last three taxable years ending before their normal retirement age. This special 457 catch-up is sometimes referred to as the “pre-retirement catch-up.” Normal retirement age is the earlier of: age 65 or the age that the participant has a right to retire and receive full benefits under the governmental or tax-exempt entity-sponsored defined benefit or money purchase plan. Normal retirement age can’t be later than age 70½, but the plan may permit a participant to select a retirement age within the above parameters. See Treas. Reg. 1.457-4(c)(3)(v).

Under the special 457 catch-up, the maximum annual deferrals – which include salary reduction and non-elective contributions – can’t exceed the lesser of:

  • twice the Section 457(b) applicable dollar amount, or
  • the underutilized limitation. See IRC 457(b)(3).

The underutilized limitation is the sum of:
(1) the basic annual limitation for the taxable year, plus
(2) the basic annual limitation in prior taxable years less annual deferrals the participant made for those prior taxable years (but not age 50 catch-up deferrals). See Treas. Reg. 1.457-4(c)(3)(ii). To determine the underutilized limitation for years before 2002, reduce the basic annual limitation for the coordination limitation in effect for those years. You can find more information on plan contributions that reduce the basic annual limitation before 2002 under the coordination limitation in Treas. Reg. 1.457-4(c)(3)(iv).

Plan administrator recordkeeping

The special 457 catch-up requires the plan administrator to:

  • keep accurate bookkeeping of each participant’s vested contributions they made to the IRC Section 457(b) plan for all taxable years, and consider other employer plans for years before 2002, if applicable. Not tracking prior contributions in an IRC Section 457(b) plan may cause the participant to have excess deferrals.
  • verify that the participant makes the special 457 catch-up contributions during the three taxable years ending before their normal retirement age.

Age 50 Catch-Up – Governmental 457(b) Plans

Governmental 457(b) plans may allow participants who are age 50 or older during the tax year to make deferrals in excess of the basic annual limitation under IRC Sections 457(e)(18) and 414(v). These catch-up contributions for 457(b) eligible deferred compensation plans are the same as catch-up contributions for other plans. See IRC Section 414(v)(1), IRC Section 414(v)(6)(B) and 414(u)(2)(C). The additional deferral amount is limited to the lesser of:

  • the IRC Section 414(v) applicable dollar amount, which is $6,500 in 2021, or
  • 100% of the participant’s compensation (when added to the other deferrals for the year). While IRC Sections 414(v)(1) refers to additional “elective deferrals,” IRC Sections 414(v)(6)(B) and 414(u)(2)(C) clarify that “elective deferral” includes any deferral of compensation under an eligible deferred compensation plan as defined in IRC Section 457(b).

The age 50 catch-up is not available to a tax-exempt Section 457(b) plan.

A participant may not use both the age 50 catch-up and the special 457 catch-up in the same year per IRC Sections 457(e)(18) and 414(v)(6). See Treas. Reg. 1.457-4(c)(2).

Plan administrator recordkeeping

A plan administrator for a governmental Section 457(b) plan must:

  • calculate the maximum deferral amount under the special 457(b) catch-up and the age 50 catch-up to determine which catch-up yields the larger amount for eligible participants.
  • keep track of eligible participants’ maximum deferral amounts under each catch-up. Not doing so could result in excess deferrals.

Issue Indicators or Audit Tips

  • Determine if the employer is a governmental or a tax-exempt entity.
  • Verify that the plan document has the language for special 457(b) catch-up contributions.
  • Note the normal retirement age and verify that it can be no greater than age 70½, and no less than age 65 or the age the participant may retire and receive full benefits from the pension plan sponsored by the employer.
  • Verify a participant-elected normal retirement age is within the above parameters, if the plan permits a participant to elect his normal retirement age.
  • Verify the underutilized amounts: Determine the first date the participant was eligible to participate in the 457(b) plan, the original effective date of the plan, the participant’s annual deferrals for all prior years, and the basic annual limitation in effect for those years. See the examples in Treas. Reg. 1.457-4(c)(3)(iv)(D).
  • Verify that the plan document has the language for age 50 catch-up contributions and that the plan sponsor is a governmental entity.
  • Verify that no participant in a governmental Section 457(b) plan used both the special 457 catch-up and the age 50 catch-up in the same year.
  • Include a participant’s vested salary reduction and non-elective employer contributions in determining whether annual deferrals comply with the basic annual limitation and the increased limit under the catch-up provisions.
  • If any participant’s deferrals exceed the maximum amount allowed, the participant has excess deferrals and the plan is non-qualified. Governmental sponsored plans may correct this error using the 180-day rule in Treas. Reg. 1.457-9(a). For an eligible IRC 457(b) plan of a tax- exempt entity, a plan that is operated in a manner inconsistent with IRC Section 457(b) and Treas. Reg. Sections 1.457(b)-3 through 1.457(b)-8 and Section 1.457-10 becomes an ineligible plan subject to IRC 457(f). Per Section 4.09 of Revenue Procedure 2021-30PDF, the Employee Plans Compliance Resolution System, for failures associated with an eligible Section 457(b) plan of a tax-exempt entity, the IRS generally will not enter into an agreement to address those failures. Correction through a closing agreement under the authority in Delegation Order 8-3 may be permitted in very limited circumstances.