Year-End Amendments for 457(b) Plans—A Reminder

Non-governmental employers that sponsor Section 457(b) deferred compensation plans should be mindful that December 31, 2025, is the deadline for plan amendments to reflect changes in law included in the SECURE 2.0 Act of 2022 (“SECURE 2.0”), if their plan has put the changes into effect operationally before that date.

IRS Notice 2024-02 extended the SECURE 2.0 amendment deadline to the end of 2026 for most qualified plans and 403(b) plans, to the end of 2028 for collectively bargained plans, and to the end of 2029 for governmental plans. However, these extensions were not made applicable to 457(b) plans maintained by non-governmental employers. For non-governmental 457(b) plans, the amendment deadline remains the last day of the first plan year beginning on or after January 1, 2025, as set forth in the statute. For calendar year plans, this is December 31, 2025.

The SECURE 2.0 changes that have most commonly been put into effect for such plans are (i) an increase in the small balance distribution limit from $5,000 to $7,000 and (ii) an increase in the required minimum distribution age from age 72 under the SECURE Act of 2019 (“SECURE Act”) to age 72 for participants born between July 1, 1949 and December 31, 1950, and age 73 for participants born between January 1, 1951 and December 31, 1959. If a calendar year non-governmental 457(b) plan has operationalized either change, or both, a plan amendment will be needed to reflect the relevant changes by December 31, 2025, including the effective date for each change. Many plan sponsors are also increasing the required minimum distribution age to 75 for participants born on or after January 1, 1960, even though those participants will not reach age 75 for many years.

Other changes in a plan’s required minimum distribution provisions may also be needed to reflect recent changes in law. However, many 457(b) plans of non-governmental employers do not include detailed minimum distribution language but instead undertake in a general way to comply with the requirements of the minimum distribution rules. Plans that take this approach normally will not need to be amended for these other changes in law.[1]

Note that 457(b) plans of non-governmental employers are permitted, but not required, to raise their small balance distribution limit and their required minimum distribution ages as described. If a plan has implemented the increases, an amendment will be needed. However, an employer could decide to stick with the old small balance distribution limit and/or not to update its required minimum distribution age. If a plan were to continue using age 72 (or even age 70½, the pre-SECURE Act age) as its required minimum distribution age, it would necessarily comply with a rule that calls for plans to include a provision requiring distributions to start not later than age 73.

Finally, 457(b) plans of non-governmental employers are also permitted, but not required, to allow in-service distributions to participants who have attained age 70½. An employer with a plan that allows such distributions could choose to change the in-service distribution age to keep pace with the required minimum distribution age, or it could stick with age 70½. Many employers with plans that allow age 70½ in-service distributions decide to leave this provision as is.

If you need assistance with year-end amendments for a non-governmental 457(b) plan, please contact William Jewett or any member of Verrill’s Employee Benefits & Executive Compensation Group.

[1] For example, SECURE 2.0 gives the surviving spouse of a participant who dies before distributions begin an election to be treated as if the surviving spouse were the participant and wait until the date the participant would have attained the applicable age to begin taking required minimum distributions. Non-governmental 457(b) plans seldom spell out the required minimum distribution rules in this level of detail, and most have no need to incorporate this rule because they provide for payment in a single sum upon the participant’s death.