Comparison of governmental 457(b) plans and 401(k) plans: Features and corrections

 

Feature/Correction 457(b) plan 401(k) plan
Can state or local government maintain? Yes No, unless adopted before May 5, 1986
Written plan document required? Yes Yes
Eligible participants Employees or independent contractors who perform services for the employer may participate For the exclusive benefit of employees; independent contractors can’t participate

Coverage; Nondiscrimination testing

 

 No Yes
Salary reduction contributions (employee elective deferrals) permitted? Yes Yes
Ability to designate all or portion of salary reduction contribution as a Roth contribution Yes Yes
Employer contributions permitted? Yes Yes
Salary reduction contribution limit (generally) Lesser of applicable dollar limit $23,000 in 2024 ($22,500 in 2023; $20,500 in 2022; $19,500 in 2021 and in 2020) or 100% of participant’s includible compensation Salary reduction up to a maximum of $23,000 in 2024 ($22,500 in 2023; $20,500 in 2022; $19,500 in 2021 and in 2020)
Increased salary reduction limit for final 3 years before attaining normal retirement age

Lesser of:

  • 2 x applicable dollar limit ($46,000 in 2024, $45,000 in 2023, $41,000 in 2022, $39,000 in 2021 and in 2020) or
  • applicable dollar limit plus sum of unused deferrals in prior years (to the extent that deferrals made were less than the applicable limits on deferrals; age 50 catch-up contributions aren’t counted for this purpose)

Note: Can’t use the increased limit if using age 50 catch-up contributions. In years when employee is eligible to take advantage of both, the employee can use the higher of the two increases to the limit.

 No increased limits
Salary reduction contribution limits - age 50 catch-up contributions (for individuals who are 50 or over at the end of the calendar year)

Salary reduction dollar limit increased to $7,500 in 2024 and 2023, $6,500 in 2022, 2021 and 2020 (up to a total of $30,500 in 2024, $30,000 in 2023, $27,000 in 2022 and $26,000 in 2021 and in 2020)

Note: See above. Can’t use in years that a participant is taking advantage of the increased limit during the final 3 years before attaining normal retirement age.

 Salary reduction dollar limit increased to $7,500 in 2024 and 2023, $6,500 in 2022, 2021 and 2020 (up to a total of $30,500 in 2024, $30,000 in 2023; $27,000 in 2022; $26,000 in 2021 and in 2020)
Timing of election to make salary reduction contribution Before the first day of the month in which the compensation is paid or made available. Before the compensation is paid or made available, but no less frequent than annually.
Total contribution limits (both salary reduction and employer contributions) Same as limit for salary reduction contributions. Therefore, any employer contribution will have the effect of reducing the limit on the amount of salary reduction contribution an employee could make (and vice versa)

Elective deferrals plus employer contributions plus allocated forfeitures can't exceed the lesser of:

  • $69,000 in 2024 ($66,000 in 2023, $61,000 in 2022, $58,000 in 2021 and $57,000 in 2020) or
  • employee’s compensation
Contributions to trust? Yes Yes
Loans that are not treated as taxable distributions to the participant permitted? Yes Yes
Hardship distributions permitted?

Yes, if both:

1. the distribution is required as a result of an unforeseeable emergency for example, illness, accident, natural disaster, other extraordinary and unforeseeable circumstances arising from events beyond the participant’s (or beneficiary’s) control
 

2. the participant exhausted other sources of financing and the amount distributed is necessary to satisfy the emergency need (and tax liability arising from distribution)

Yes, if both:

1. the distribution is required to meet an immediate and heavy financial need. Note: the need doesn’t have to arise from an unforeseeable emergency, for example, medical expenses, purchase of a principal residence, tuition and related room and board expenses for employee, employee’s spouse or dependents, expenses required to prevent eviction/foreclosure
 

2. the participant exhausted other sources of financing and the amount distributed is necessary to satisfy the financial need (and tax liability arising from distribution)
Automatic Enrollment permitted? Yes Yes
Eligible Automatic Contribution Arrangement (EACA) permitted? Yes Yes
Distributable events
  • Attainment of age 70 ½
  • Severance from employment
  • Unforeseeable emergency (see above)
  • Plan termination
  • Qualified domestic relations order
  • Small account distribution (not to exceed $5,000)
  • Permissible EACA withdrawals
  • Attainment of age 59 ½
  • Severance from employment
  • Hardship (see above)
  • Death, disability
  • Plan termination
Required minimum distributions under Internal Revenue Code Section 401(a)(9) Yes Yes
Rollovers to other eligible retirement plans (401(k), 403(b), governmental 457(b), IRAs) Yes Yes
Availability of statutory period to correct plan for failure to meet applicable requirements Until 1st day of the plan year beginning more than 180 days after notification by the IRS No
Availability of IRS correction programs including the Employee Plans Compliance Resolution System (EPCRS) under Rev. Proc. 2021-30 Can apply for a closing agreement with a proposal to correct failures. Proposals are evaluated using EPCRS standards. Yes, if eligibility requirements are met.
Page Last Reviewed or Updated: 31-Jul-2024