WASHINGTON - Industry experts say assets in 457 plans are not in as much danger as a federal government report suggests. But the experts agree plan assets need to be protected.
"To me, the report is exaggerated," said Jennifer Harris, director of the pension and benefits project for the Government Finance Officers Association, Washington.
Ms. Harris said the report, issued recently by the General Accounting Office, Washington, incorrectly positions the plans as unfunded. But she agreed with the report's findings that 457 plans are inflexible, not portable and do not allow participants to contribute as much as 401(k) participants.
A 457 plan is a non-qualified deferred compensation plan that allows participants to contribute up to $7,500 annually. Participants are not allowed to roll their contributions into an individual retirement account or other qualified plan, the report says. Plus, participants have to choose a final distribution date, which is unchangeable, Ms. Harris says.
In order to be tax-deferred, assets are owned by the sponsoring employer and may be used for non-plan purposes. "Plan participants may risk the loss of some or all their deferrals if their sponsoring government goes bankrupt or funds are in some way mismanaged or lost," the report said.
The GAO recommended Congress amend pension law to allow state and local governments to offer non-qualified 401(k) plans instead of 457 plans.
But even if the law is amended, it might not make a difference because 401(k) plans are so expensive to operate, said Susan White, legislative counsel for the National Association of Deferred Compensation Administrators, Alexandria, Va.
What's more important, she said, is to protect the plan assets. "Once we know these plans are protected, then the debate (to offer 401(k) plans) will open up."