Which of the following statements regarding 457 plans is(are) true? 1. An indivi

Question

Which of the following statements regarding 457 plans is(are) true? 1. An individual who defers $17,500 to his 403(b) plan during 2013 can also defer $17,500 to a 457 plan during 2013 (salary and plan permitting). 2. A 457 plan allows an executive of a tax-exempt entity to defer compensation into an ERISA protected trust. 3. In the final three years before normal retirement age, a participant of a government sponsored 457 plan may be able to defer $35,000 (2013) for the plan year.

Which of the following statements is(are) true? 1. A SEP requires the plan sponsor to provide at least a 100% match up to 3% of all employee deferrals. 2. A SEP plan can be established by employers who employ more than 100 employees who earn $5,000 or more during the preceding calendar year. 3. SIMPLEs can be either contributory or noncontributory plans, whereas SEP plans are always noncontributory. 4. An employer who wants to share the responsibility of retirement plan funding should establish a SIMPLE rather than a SEP.

Explanation / Answer

Which of the following statements regarding 457 plans is(are) true? 1. An individual who defers $17,500 to his 403(b) plan during 2013 can also defer $17,500 to a 457 plan during 2013 (salary and plan permitting). 2. A 457 plan allows an executive of a tax-exempt entity to defer compensation into an ERISA protected trust. 3. In the final three years before normal retirement age, a participant of a government sponsored 457 plan may be able to defer $35,000 (2013) for the plan year.

Choices 1 and 3 are true. Since 2001 when the new tax laws went in place, employees can contribute to both a 457 and 403 plan. The final three year provision of contributing double is also true. The second choice is not true because executives must contribute to a private plan and not a public one. The private plans are not full funded and protected by ERISA.

Which of the following statements is(are) true? 1. A SEP requires the plan sponsor to provide at least a 100% match up to 3% of all employee deferrals. 2. A SEP plan can be established by employers who employ more than 100 employees who earn $5,000 or more during the preceding calendar year. 3. SIMPLEs can be either contributory or noncontributory plans, whereas SEP plans are always noncontributory. 4. An employer who wants to share the responsibility of retirement plan funding should establish a SIMPLE rather than a SEP.

Choices 3 and 4 are true. A simple plan allows employees to contribute but does not required that they do so. This type of plan shares responsibility with employees because contributions from the employer are made as a matching contribution up to a certain percentage of what the employer pays.

Choices 1 and 2 are incorrect. A SEP can be used for any number of employees. It does not have to be 100 employees. The employer has the option of contibuting each year but is not required to do so.

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