The employer provides the plan and the employee defers compensation into it on a pretax or after-tax (Roth) basis.
[3] The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made a number of changes in how governmental 457 plans are treated, the most notable of which is that the coordination of benefits limitation was removed.
The total would then be $52,000 deferred instead of the $26,000 [19,500 + 6,500] that would have been allowed if the coordination of benefits provision had not been repealed in regard to the governmental 457 plan.
Contributions to Roth accounts are made on an after-tax basis, but distributions of both principal and earnings are generally tax-free.
An employee who had deferred the maximum amount of money into the 457 plan every year he was employed previously would not be able to use this extra catch-up.
Also, money deferred into nongovernmental plans is not set aside in a trust for the exclusive benefit of the employee making the deferral.
IRS code section 457(f) allows for nongovernmental, nonprofit organizations to set up a plan that can be tax deferred and exceed the normal defined contribution employee deferral limit.
Generally, these deferred amounts would be currently taxable under section 83 of the code, unless the employee faces a "substantial risk of forfeiture", which has been clarified by the IRS to mean that in addition to the money remaining available to general creditors of the organization, it must also be subject to a vesting schedule wherein it will be forfeited if the employee does not stay with the employer for the full vesting period.
When the risk of forfeiture is gone, the value of the property given to the employee ceases to be deferred from taxation and is included in current ordinary gross income.
This is to make the employer junior to general creditors, so that the employee can avoid current inclusion into income.