Definition
A 457(b) plan is a nonqualified deferred compensation plan established under Internal Revenue Code Section 457(b) by a state or local government employer or a tax-exempt organization, permitting eligible employees to defer compensation on a pre-tax or Roth basis into the plan.
Why it matters
The 457(b) plan is the dominant elective-deferral retirement plan form for state and local government employees and is also available to certain nonprofit employers. It is structurally distinct from the 401(k) and 403(b) plans in several ways that matter at contribution, distribution, and — for nongovernmental plans — asset ownership, and those distinctions shape what participants can do with the deferred amounts and when.
How it works
A 457(b) plan is a deferred compensation arrangement in which eligible employees elect to defer compensation into the plan on a pre-tax or Roth basis. For 2026, the elective deferral limit is $24,500, with an $8,000 age-50 catch-up and an $11,250 SECURE 2.0 catch-up for participants age 60 through 63; a special pre-retirement catch-up provision permits deferrals of up to double the normal limit (up to $49,000 in 2026) during the three years before normal retirement age, subject to the participant having under-contributed in prior years (source: IRS Notice 2025-67). Governmental 457(b) plans hold assets in trust for the exclusive benefit of participants, similar to a 401(k) plan, and permit rollovers to and from other eligible retirement plans. Nongovernmental 457(b) plans sponsored by tax-exempt organizations hold plan assets as unfunded promises of the employer, meaning the assets remain subject to the employer's general creditors, and rollovers to other plan types are not permitted. The 10% early distribution penalty that applies to 401(k) and 403(b) distributions before age 59½ generally does not apply to governmental 457(b) distributions, which are available upon separation from service regardless of age.
In practice
If you participate in a 457(b) plan, whether the plan is governmental or nongovernmental is a first-order structural fact that shapes what you can do with deferred amounts. In a governmental 457(b), deferred amounts are held in trust for you, are portable via rollover to other eligible retirement plans, and are available upon separation from service without the 10% early distribution penalty that applies to 401(k) and 403(b) distributions before age 59½. In a nongovernmental 457(b), deferred amounts remain subject to the employer's general creditors, meaning the funds are exposed to the employer's solvency in ways the participant's own 401(k) or 403(b) account is not. If you have access to both a 457(b) and another elective-deferral plan through the same or different employer, the 457(b) limit is separate from the 402(g) limit that applies to combined 401(k) and 403(b) deferrals, which permits substantially higher aggregate deferral for participants with both types available. A professional advising on 457(b) decisions should be able to name the governmental or nongovernmental status of the plan and to explain what that status implies for asset security and portability.
In the Longevity Standard Framework
The 457(b) plan enters the Longevity Standard framework as the primary DC structural context for the state and local government workforce and, in nongovernmental form, for certain tax-exempt employer populations. The cost-of-income framework applies to 457(b) balances at decumulation identically to how it applies to other DC balances, with the distinction that a substantial share of state and local government workers also participate in a defined benefit plan alongside the 457(b), which shifts the analytical question from "how do I convert balance into lifetime income" to "how much additional lifetime income do I need on top of the DB benefit and Social Security."
Related terms
- Defined contribution plan
- 401(k) plan
- 403(b) plan
- Elective deferral
- Deferred compensation
- Governmental plan
- Rollover
- Defined benefit plan