457(F) Governmental & TAX-EXEMPT Deferred Compensation Plan Advisors and Consultants

A 457(f) deferred compensation plan is an "ineligible" nonqualified deferred compensation arrangement under Section 457(f) of the Internal Revenue Code, available to state and local governmental entities and tax-exempt organizations (such as nonprofits under IRC Section 501(c)).

Unlike 457(b) plans or 403(b) plans (which are "eligible" plans with strict annual contribution limits, $23,500 in 2025, plus catch-ups—and tax deferral until distribution), the 457(f) non-qualified deferred compensation plan (NQDC) allows for the employer to make unlimited contributions to key employees. The 457(f) plan also provides tax deferral only while amounts remain subject to a substantial risk of forfeiture (SRF).

Glover Park Wealth Management, LLC is a Governmental and Non-Profit tax-exempt 501(c)(3) fiduciary 457(f) plan advisor.

Key Features of the 457(f) Deferred Compensation Plan

• Purpose: Commonly used to attract, retain, and reward key executives or highly compensated employees (often called Supplemental Executive Retirement Plans or SERPs). They supplement limited retirement options for nonprofits/governments that can't offer certain qualified plans.

• Contributions: 457(f) plans are typically funded by the employer (employee deferrals are rare due to immediate vesting/taxation issues).

• No dollar limits, allowing significant supplemental benefits beyond 457(b) or 403(b) contribution limits.

• Taxation: Deferred amounts (plus earnings) are included in gross income when the SRF lapses (i.e., when vested), even if not yet paid. This differs from 457(b) plans, where taxation occurs on distribution. Post-vesting earnings may be taxed later if still deferred.

• Substantial Risk of Forfeiture (SRF): The core requirement for tax deferral. Typically achieved through the following conditions:

• Continued performance of substantial future services (e.g., vesting over 2–5+ years).

• Performance-based conditions related to the compensation's purpose (e.g., organizational goals).

• Distributions: Are usually paid upon vesting via payroll, separation from service, death, disability, or a specified time. Subject to ordinary income tax; no 10% early withdrawal penalty. Many designs use "short-term deferral" rules (payment within 2.5 months after vesting year) to minimize further deferral complexities.

• Other 457(f) Rules to Consider: Generally subject to IRC Section 409A (distribution timing, election rules) if deferral occurs post-vesting. Plans are unfunded (assets remain subject to employer creditors), providing no ERISA funding protections.

• Advantages: Flexible, high-value retention tool ("golden handcuffs"); unlimited amounts; tax deferral during vesting period.

• Risks: Taxation at vesting can create large tax bills (even without cash receipt); creditor exposure; compliance complexity with 457(f) and 409A.

• Rabbi Trust: A rabbi trust is a grantor irrevocable trust commonly used to informally fund 457(f) deferred compensation plans for governmental and tax-exempt organizations. The employer sets aside assets in an irrevocable trust to secure promised benefits, protecting them from the employer's future change of control or diversion (as long as the employer is solvent), while keeping the plan "unfunded" for tax purposes because the assets remain subject to the claims of the employer's general creditors in bankruptcy.

• The Rabbi Trust ensures that distributions from the 457(f) plan happen according to the trust agreement and employee vesting schedule. Distributions can only be made from the Rabbi Trust for defined specific reasons which provides a layer of security of the 457(f) plan assets from employer misappropriation of 457(f) plan assets. This structure provides some assurance that funds will be available when benefits vest or are paid.

In summary, 457(f) plans offer powerful incentives for top talent in governmental and tax-exempt sectors but require careful design to maintain SRF and avoid premature taxation. They contrast with more broadly available 457(b) plans by prioritizing executive-level, unrestricted benefits over broad employee access and simpler taxation.

Glover Park Wealth encourages plan sponsors to consult licensed CPA tax advisors and legal advisors for specific implementations, as rules involve nuances like proposed regulations and FICA timing.

Fiduciary 457(f) Plan Advisor

Glover Park Wealth Management, LLC, an SEC-registered investment adviser (RIA) based in Arlington, VA., with over $138 million in assets under management as of December 2025 and operates as a fiduciary to all clients.

As an 457(f) plan advisor, Glover Park Wealth specializes in retirement and employee benefit plan consulting, including 457(b), 403(b), 401(k), and 457(f) plan design, vendor selection, fee benchmarking, plan sponsor consulting, investment menu development, and participant education.

Glover Park Wealth is a 457(b), 403(b), 457(f) governmental and tax-exempt non-profit plan advisor and consultant. Our firm advises the plan sponsor (e.g., a state, country, or local municipality) or tax-exempt non-profit 503(c)(3) sponsors 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(f) investment options, negotiating vendor selection, and recordkeeper selection. As 457(f) Plan Consultants, our firm provides comprehensive financial planning, risk management, and ongoing monitoring to optimize plan performance and minimize costs.

Recordkeeper Selection and Consulting:

We provide quotes and plan design from the following recordkeepers: Fidelity, Empower, Principal, Voya, Transamerica, ADP, Paychex, and more.

The public sector consultants and non-profit tax-exempt advisory team at Glover Park Wealth Management, LLC is an independent fiduciary 457(f) plan advisor for state governments, county governments, governmental agencies, Quazi-Governmental agencies, local municipalities, and 501(c)(3) non-profit tax-exempt organizations.

Contact Glover Park Wealth Management today for a 457(f) plan review and quote from our 457(f) plan consultants.