Overview of 457(b) Governmental Plans
A 457(b) plan is a tax-advantaged deferred compensation retirement savings plan available exclusively to employees of state and local governments, as well as certain tax-exempt organizations under IRC Section 501(c). Governmental 457(b) plans allow participants to defer a portion of their salary on a pre-tax basis (or via Roth contributions in governmental plans), reducing their current taxable income while enabling investments to grow tax-deferred until withdraw.
Governmental 457(b) plans are particularly beneficial for public-sector workers due to their creditor protection under federal law and compatibility with rollovers to other qualified plans like IRAs, 401(k)s, or 403(b)s. They are not subject to the same nondiscrimination testing as private-sector plans, making them accessible to a broader range of employees, including highly compensated ones. Contributions can come from employees via salary deferrals or from employers as nonelective contributions, but total additions (excluding earnings) are capped annually.
Rules and Regulations
457(b) governmental plans are governed primarily by Internal Revenue Code (IRC) Section 457(b), with oversight from the IRS and the Department of Labor (DOL).
IRS rules: IRC 457(b) deferred compensation plans | Internal Revenue Service
- Eligibility and Participation: Open to employees of sponsoring governmental entities. Automatic enrollment is possible in governmental plans, but participants must elect deferrals. No minimum service requirement exists, unlike some other plans.
- Tax Treatment: Pre-tax deferrals lower taxable income in the contribution year; earnings accrue tax deferred. Distributions are taxed as ordinary income. Governmental plans may offer designated Roth accounts for after-tax contributions with tax-free qualified distributions.
- There is not a 10% early withdrawal penalty for distributions after separation from service, regardless of age, which is a major advantage for early retirees or those changing careers. However, hardship withdrawals are limited and may incur taxes.
- Distributions and Rollovers: Distributions can begin upon separation from service, attainment of age 59½, or unforeseeable emergency (e.g., medical expenses). Required Minimum Distributions (RMDs) start at age 73 (or 75 for those born in 1960 or later, per SECURE 2.0 Act). Funds can be rolled over tax-free to other eligible retirement plans or IRAs, but non-governmental 457(b) plans have more restrictions.
- Other Regulations: Plans must comply with ERISA-like fiduciary standards for governmental sponsors. Employer contributions vest immediately. Unlike 401(k) plans, governmental 457(b)s are exempt from top-heavy IRS rules. Participants in multiple unrelated 457(b) plans share the annual contribution limit across all plans.
Contribution Limits for 2025
Contribution limits are set by the IRS and adjusted annually for inflation. For 2025, the limits apply to total deferrals and vested employer contributions, capped at the lesser of the statutory amount or 100% of the participant's includible compensation (typically wages plus certain benefits).
Standard Annual Limit
$23,500 contribution limit applies to all participants: up from $23,000 in 2024. Includes pre-tax and Roth deferrals.
Age 50+ Catch-Up
+$7,500 (total: $31,000) Available for participants that are age 50 or older by year-end.
Ages 60-63 Enhanced Catch-Up (SECURE 2.0)
+$11,250 (total: $34,750) Replaces the standard catch-up for eligible participants; indexed for inflation.
Special Pre-Retirement Catch-Up:
Up to $47,000 (or unused prior limits + standard) For those within 3 years of normal retirement age; lesser of twice the standard limit or standard + unused room from prior years. This catch-up can't combine with age-based catchups and is in governmental 457(b) plans only.
Fiduciary 457(b) Plan Advisor
Glover Park Wealth Management, LLC, an SEC-registered investment adviser (RIA) based in Arlington, VA., with over $135 million in assets under management as of December 2025 and operates as a fiduciary to all clients.
As a 457(b) fiduciary plan consultant, Glover Park Wealth specializes in retirement and employee benefit plan consulting, including 401(k) design, vendor selection, fee benchmarking, plan sponsor consulting, investment menu development, and participant education.
Glover Park Wealth is a 457(b) governmental plan advisor, our firm advises the plan sponsor (e.g., a state, country, or local municipality) on fiduciary compliance, such as prudent investment selection, fee transparency under DOL rules, and alignment with participants' needs—ensuring the plan meets ERISA-equivalent standards for governmental entities.
As an independent SEC registered investment advisor (RIA), we provide impartial recommendations, such as diversifying 457(b) investment options or integrating Roth features, negotiating vendor selection, and recordkeeper selection. As 457(b) Governmental Plan Consultants, our firm provides comprehensive financial planning, risk management, and ongoing monitoring to optimize plan performance and minimize costs.
Recordkeeper Selection:
We provide quotes from the following recordkeepers: Fidelity, Empower, Principal, Voya, Transamerica, and more.
The public sector consultant team at Glover Park Wealth Management, LLC is an independent fiduciary 457(b) advisor for state governments, county governments, governmental agencies, Quazi-Governmental agencies, and local municipalities.
Contact Glover Park Wealth Management today for a Governmental 457(b) plan review and quote from our 457(b) plan consultants.
457(b) Governmental Plan Advisor
A 457(b) plan is a deferred compensation retirement savings plan offered by state and local governments (municipalities) and certain tax-exempt organizations to their employees. Unlike private-sector 401(k) plans, governmental 457(b) plans are exempt from ERISA (Employee Retirement Income Security Act), but they are still subject to fiduciary duties under state laws, constitutional provisions, and common law of trusts.
These duties require plan sponsors (the municipality or its board) to act prudently, solely in the interest of participants, and with care in managing the plan. Municipalities should consider using a specialized 457(b) plan advisor (often referred to as a 457(b) plan consultant, investment advisor, or retirement plan specialist) for several key reasons:
- Fulfilling Fiduciary Responsibilities and Mitigating Risks Plan sponsors have a duty to engage in a prudent process when selecting and monitoring investments, providers, and plan features. This includes thorough investigation and documentation. An independent plan advisor or consultant helps ensure compliance with these obligations, reduces personal liability for board members and/or officials, and provides expertise that internal staff does not specialize in. Certain states like California explicitly tie 457(b) funds to constitutional fiduciary standards requiring prudent selection of investments and advisors.
- Expertise in Plan Design, Administration, and Compliance 457(b) plans have unique rules (e.g., no early withdrawal penalties, special catch-up provisions, and requirements for plan documents). Glover Park Wealth assists with ongoing reviews, ensuring the plan remains competitive, tax-qualified, and aligned with IRS and DOL regulations. They also help navigate optional features like loans or transfers in a 457(b) plan.
- Investment Selection and Monitoring The 457(b) plan consultants at Glover Park Wealth conduct due diligence on investment options, recommends appropriate funds or portfolios, and monitor performance and fees. This helps control costs, improve participant outcomes, and avoid high-fee or underperforming options.
- Cost Reduction and Vendor Review Many legacy 457(b) Governmental plans have outdated providers with higher mutual fund fees and plan expenses. The advisors at Glover Park Wealth will benchmark the current setup, potentially negotiate better terms with the current recordkeeper, or recommend moving recordkeepers, potentially lowering plan expenses and enhancing value for plan participants.
- Increased Scrutiny from Regulators The IRS and DOL are auditing more 457(b) plans to assess fiduciary practices, even without ERISA oversight. The 457(b) plan consultants at Glover Park Wealth provide documentation of prudent decision-making, which is critical if the plan faces a review or formal audit.
- Employee Recruitment and Retention Benefits A well-managed 457(b) plan with low fees, strong investments, and educational resources helps attract and retain public employees, who often rely on 457(b) plans to supplement their pensions.
In summary, engaging a qualified 457(b) plan advisor consultant such as Glover Park Wealth will demonstrates prudence, and can potentially protect the municipality from legal risks, while optimizing the plan and lowering fees for all plan participants.
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At Glover Park Wealth Management, we believe that designing a low-cost 457(b) Governmental Plan is in the best interest of the municipality and most importantly, for the government employee plan participants.
Glover Park Wealth Management, LLC is ready to help your state, county, or local government navigate the 457(b) deferred compensation plan marketplace. Contact us today!