---
kind: "range"
citation: "26 C.F.R. §§ 1.457-6–1.457-10"
title: "26"
from: "1.457-6"
to: "1.457-10"
count: 5
url: "https://uscodex.org/cfr/26/1.457-6..1.457-10"
---

# §1.457-6. Timing of distributions under eligible plans.

- (a) **In general.** Except as provided in [paragraph (c)](#c) of this section (relating to distributions on account of an unforeseeable emergency), [paragraph (e)](#e) of this section (relating to distributions of small accounts), [§ 1.457-10(a)](/cfr/26/1.457-10.md?p=a) (relating to plan terminations), or [§ 1.457-10(c)](/cfr/26/1.457-10.md?p=c) (relating to domestic relations orders), amounts deferred under an eligible plan may not be paid to a participant or beneficiary before the participant has a severance from employment with the eligible employer or when the participant attains age 70 1/2, if earlier. For rules relating to loans, see [paragraph (f)](#f) of this section. This section does not apply to distributions of excess amounts under [§ 1.457-4(e)](/cfr/26/1.457-4.md?p=e). However, except to the extent set forth by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin (see [§ 601.601(d)](/cfr/26/601.601.md?p=d) of this chapter), this section applies to amounts held in a separate account for eligible rollover distributions maintained by an eligible governmental plan as described in [§ 1.457-10(e)(2)](/cfr/26/1.457-10.md?p=e-2).
- (b) **Severance from employment—**
  - (1) **Employees.** An employee has a severance from employment with the eligible employer if the employee dies, retires, or otherwise has a severance from employment with the eligible employer. See regulations under [section 401(k)](/cfr/26/401.md?p=k) for additional guidance concerning severance from employment.
  - (2) **Independent contractors—**
    - (i) **In general.** An independent contractor is considered to have a severance from employment with the eligible employer upon the expiration of the contract (or in the case of more than one contract, all contracts) under which services are performed for the eligible employer if the expiration constitutes a good-faith and complete termination of the contractual relationship. An expiration does not constitute a good faith and complete termination of the contractual relationship if the eligible employer anticipates a renewal of a contractual relationship or the independent contractor becoming an employee. For this purpose, an eligible employer is considered to anticipate the renewal of the contractual relationship with an independent contractor if it intends to contract again for the services provided under the expired contract, and neither the eligible employer nor the independent contractor has eliminated the independent contractor as a possible provider of services under any such new contract. Further, an eligible employer is considered to intend to contract again for the services provided under an expired contract if the eligible employer's doing so is conditioned only upon incurring a need for the services, the availability of funds, or both.
    - (ii) **Special rule.** Notwithstanding [paragraph (b)(2)(i)](#b-2-i) of this section, the plan is considered to satisfy the requirement described in [paragraph (a)](#a) of this section that no amounts deferred under the plan be paid or made available to the participant before the participant has a severance from employment with the eligible employer if, with respect to amounts payable to a participant who is an independent contractor, an eligible plan provides that—
      - (A) No amount will be paid to the participant before a date at least 12 months after the day on which the contract expires under which services are performed for the eligible employer (or, in the case of more than one contract, all such contracts expire); and
      - (B) No amount payable to the participant on that date will be paid to the participant if, after the expiration of the contract (or contracts) and before that date, the participant performs services for the eligible employer as an independent contractor or an employee.
- (c) **Rules applicable to distributions for unforeseeable emergencies—**
  - (1) **In general.** An eligible plan may permit a distribution to a participant or beneficiary for an unforeseeable emergency. The distribution must satisfy the requirements of [paragraph (c)(2)](#c-2) of this section.
  - (2) **Requirements—**
    - (i) **Unforeseeable emergency defined.** An unforeseeable emergency must be defined in the plan as a severe financial hardship of the participant or beneficiary resulting from an illness or accident of the participant or beneficiary, the participant's or beneficiary's spouse, or the participant's or beneficiary's dependent (as defined in [section 152](/cfr/26/152.md), and, for taxable years beginning on or after January 1, 2005, without regard to section [152(b)(1)](/cfr/26/152.md?p=b-1), [(b)(2)](/cfr/26/152.md?p=b-2), and [(d)(1)(B)](/cfr/26/152.md?p=d-1-B)); loss of the participant's or beneficiary's property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by homeowner's insurance, such as damage that is the result of a natural disaster); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant or the beneficiary. For example, the imminent foreclosure of or eviction from the participant's or beneficiary's primary residence may constitute an unforeseeable emergency. In addition, the need to pay for medical expenses, including non-refundable deductibles, as well as for the cost of prescription drug medication, may constitute an unforeseeable emergency. Finally, the need to pay for the funeral expenses of a spouse or a dependent (as defined in [section 152](/cfr/26/152.md), and, for taxable years beginning on or after January 1, 2005, without regard to section [152(b)(1)](/cfr/26/152.md?p=b-1), [(b)(2)](/cfr/26/152.md?p=b-2), and [(d)(1)(B)](/cfr/26/152.md?p=d-1-B)) of a participant or beneficiary may also constitute an unforeseeable emergency. Except as otherwise specifically provided in this [paragraph (c)(2)(i)](#c-2-i), the purchase of a home and the payment of college tuition are not unforeseeable emergencies under this [paragraph (c)(2)(i)](#c-2-i).
    - (ii) **Unforeseeable emergency distribution standard.** Whether a participant or beneficiary is faced with an unforeseeable emergency permitting a distribution under this [paragraph (c)](#c) is to be determined based on the relevant facts and circumstances of each case, but, in any case, a distribution on account of unforeseeable emergency may not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or by cessation of deferrals under the plan.
    - (iii) **Distribution necessary to satisfy emergency need.** Distributions because of an unforeseeable emergency must be limited to the amount reasonably necessary to satisfy the emergency need (which may include any amounts necessary to pay for any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution).
- (d) **Minimum required distributions for eligible plans.** In order to be an eligible plan, a plan must meet the distribution requirements of section [457(d)(1)](/cfr/26/457.md?p=d-1) and [(2)](/cfr/26/457.md?p=d-2). Under [section 457(d)(2)](/cfr/26/457.md?p=d-2), a plan must meet the minimum distribution requirements of [section 401(a)(9)](/cfr/26/401.md?p=a-9). See [section 401(a)(9)](/cfr/26/401.md?p=a-9) and the regulations thereunder for these requirements. For taxable years beginning on or after January 1, 2025, if an eligible plan is subject to the rules of [§ 1.401(a)(9)-5](/cfr/26/1.401..5.md), then the plan must meet the requirements of [section 401(a)(9)(H)](/cfr/26/401.md?p=a-9-H). The preceding sentence applies to an eligible plan maintained by any eligible employer (including an eligible plan of a tax-exempt entity).
- (e) **Distributions of smaller accounts—**
  - (1) **In general.** An eligible plan may provide for a distribution of all or a portion of a participant's benefit if this [paragraph (e)(1)](#e-1) is satisfied. This [paragraph (e)(1)](#e-1) is satisfied if the participant's total amount deferred (the participant's total account balance) which is not attributable to rollover contributions (as defined in [section 411(a)(11)(D)](/cfr/26/411.md?p=a-11-D)) is not in excess of the dollar limit under [section 411(a)(11)(A)](/cfr/26/411.md?p=a-11-A), no amount has been deferred under the plan by or for the participant during the two-year period ending on the date of the distribution, and there has been no prior distribution under the plan to the participant under this [paragraph (e)](#e). An eligible plan is not required to permit distributions under this [paragraph (e)](#e).
  - (2) **Alternative provisions possible.** Consistent with the provisions of [paragraph (e)(1)](#e-1) of this section, a plan may provide that the total amount deferred for a participant or beneficiary will be distributed automatically to the participant or beneficiary if the requirements of [paragraph (e)(1)](#e-1) of this section are met. Alternatively, if the requirements of [paragraph (e)(1)](#e-1) of this section are met, the plan may provide for the total amount deferred for a participant or beneficiary to be distributed to the participant or beneficiary only if the participant or beneficiary so elects. The plan is permitted to substitute a specified dollar amount that is less than the total amount deferred. In addition, these two alternatives can be combined; for example, a plan could provide for automatic distributions for up to $500, but allow a participant or beneficiary to elect a distribution if the total account balance is above $500.
- (f) **Loans from eligible plans—**
  - (1) **Eligible plans of tax-exempt entities.** If a participant or beneficiary receives (directly or indirectly) any amount deferred as a loan from an eligible plan of a tax-exempt entity, that amount will be treated as having been paid or made available to the individual as a distribution under the plan, in violation of the distribution requirements of [section 457(d)](/cfr/26/457.md?p=d).
  - (2) **Eligible governmental plans.** The determination of whether the availability of a loan, the making of a loan, or a failure to repay a loan made from a trustee (or a person treated as a trustee under [section 457(g)](/cfr/26/457.md?p=g)) of an eligible governmental plan to a participant or beneficiary is treated as a distribution (directly or indirectly) for purposes of this section, and the determination of whether the availability of the loan, the making of the loan, or a failure to repay the loan is in any other respect a violation of the requirements of [section 457(b)](/cfr/26/457.md?p=b) and the regulations, depends on the facts and circumstances. Among the facts and circumstances are whether the loan has a fixed repayment schedule and bears a reasonable rate of interest, and whether there are repayment safeguards to which a prudent lender would adhere. Thus, for example, a loan must bear a reasonable rate of interest in order to satisfy the exclusive benefit requirement of [section 457(g)(1)](/cfr/26/457.md?p=g-1) and [§ 1.457-8(a)(1)](/cfr/26/1.457-8.md?p=a-1). See also [§ 1.457-7(b)(3)](/cfr/26/1.457-7.md?p=b-3) relating to the application of [section 72(p)](/cfr/26/72.md?p=p) with respect to the taxation of a loan made under an eligible governmental plan, and [§ 1.72(p)-1](/cfr/26/1.72..1.md) relating to [section 72(p)(2)](/cfr/26/72.md?p=p-2).
  - (3) **Example.** The provisions of [paragraph (f)(2)](#f-2) of this section are illustrated by the following example:

# §1.457-7. Taxation of Distributions Under Eligible Plans.

- (a) **General rules for when amounts are included in gross income.** The rules for determining when an amount deferred under an eligible plan is includible in the gross income of a participant or beneficiary depend on whether the plan is an eligible governmental plan or an eligible plan of a tax-exempt entity. [Paragraph (b)](#b) of this section sets forth the rules for an eligible governmental plan. [Paragraph (c)](#c) of this section sets forth the rules for an eligible plan of a tax-exempt entity.
- (b) **Amounts included in gross income under an eligible governmental plan—**
  - (1) **Amounts included in gross income in year paid under an eligible governmental plan.** Except as provided in paragraphs [(b)(2)](#b-2) and [(3)](#b-3) of this section (or in [§ 1.457-10(c)](/cfr/26/1.457-10.md?p=c) relating to payments to a spouse or former spouse pursuant to a qualified domestic relations order), amounts deferred under an eligible governmental plan are includible in the gross income of a participant or beneficiary for the taxable year in which paid to the participant or beneficiary under the plan.
  - (2) **Rollovers to individual retirement arrangements and other eligible retirement plans.** A trustee-to-trustee transfer in accordance with [section 401(a)(31)](/cfr/26/401.md?p=a-31) (generally referred to as a direct rollover) from an eligible government plan is not includible in gross income of a participant or beneficiary in the year transferred. In addition, any payment made from an eligible government plan in the form of an eligible rollover distribution (as defined in [section 402(c)(4)](/cfr/26/402.md?p=c-4)) is not includible in gross income in the year paid to the extent the payment is transferred to an eligible retirement plan (as defined in [section 402(c)(8)(B)](/cfr/26/402.md?p=c-8-B)) within 60 days, including the transfer to the eligible retirement plan of any property distributed from the eligible governmental plan. For this purpose, the rules of section [402(c)(2) through (7)](/cfr/26/402.md?p=c-2..c-7) and [(9)](/cfr/26/402.md?p=c-9) apply. Any trustee-to-trustee transfer under this [paragraph (b)(2)](#b-2) from an eligible government plan is a distribution that is subject to the distribution requirements of [§ 1.457-6](/cfr/26/1.457-6.md).
  - (3) **Amounts taxable under section 72(p)(1).** In accordance with [section 72(p)](/cfr/26/72.md?p=p), the amount of any loan from an eligible governmental plan to a participant or beneficiary (including any pledge or assignment treated as a loan under [section 72(p)(1)(B)](/cfr/26/72.md?p=p-1-B)) is treated as having been received as a distribution from the plan under [section 72(p)(1)](/cfr/26/72.md?p=p-1), except to the extent set forth in [section 72(p)(2)](/cfr/26/72.md?p=p-2) (relating to loans that do not exceed a maximum amount and that are repayable in accordance with certain terms) and [§ 1.72(p)-1](/cfr/26/1.72..1.md). Thus, except to the extent a loan satisfies [section 72(p)(2)](/cfr/26/72.md?p=p-2), any amount loaned from an eligible governmental plan to a participant or beneficiary (including any pledge or assignment treated as a loan under [section 72(p)(1)(B)](/cfr/26/72.md?p=p-1-B)) is includible in the gross income of the participant or beneficiary for the taxable year in which the loan is made. See generally [§ 1.72(p)-1](/cfr/26/1.72..1.md).
  - (4) **Examples.** The provisions of this [paragraph (b)](#b) are illustrated by the following examples:
- (c) **Amounts included in gross income under an eligible plan of a tax-exempt entity—**
  - (1) **Amounts included in gross income in year paid or made available under an eligible plan of a tax-exempt entity.** Amounts deferred under an eligible plan of a tax-exempt entity are includible in the gross income of a participant or beneficiary for the taxable year in which paid or otherwise made available to the participant or beneficiary under the plan. Thus, amounts deferred under an eligible plan of a tax-exempt entity are includible in the gross income of the participant or beneficiary in the year the amounts are first made available under the terms of the plan, even if the plan has not distributed the amounts deferred. Amounts deferred under an eligible plan of a tax-exempt entity are not considered made available to the participant or beneficiary solely because the participant or beneficiary is permitted to choose among various investments under the plan.
  - (2) **When amounts deferred are considered to be made available under an eligible plan of a tax-exempt entity—**
    - (i) **General rule.** Except as provided in [paragraphs (c)(2)(ii) through (iv)](#c-2-ii..c-2-iv) of this section, amounts deferred under an eligible plan of a tax-exempt entity are considered made available (and, thus, are includible in the gross income of the participant or beneficiary under this [paragraph (c)](#c)) at the earliest date, on or after severance from employment, on which the plan allows distributions to commence, but in no event later than the date on which distributions must commence pursuant to [section 401(a)(9)](/cfr/26/401.md?p=a-9). For example, in the case of a plan that permits distribution to commence on the date that is 60 days after the close of the plan year in which the participant has a severance from employment with the eligible employer, amounts deferred are considered to be made available on that date. However, distributions deferred in accordance with [paragraphs (c)(2)(ii) through (iv)](#c-2-ii..c-2-iv) of this section are not considered made available prior to the applicable date under [paragraphs (c)(2)(ii) through (iv)](#c-2-ii..c-2-iv) of this section. In addition, no portion of a participant or beneficiary's account is treated as made available (and thus currently includible in income) under an eligible plan of a tax-exempt entity merely because the participant or beneficiary under the plan may elect to receive a distribution in any of the following circumstances:
      - (A) A distribution in the event of an unforeseeable emergency to the extent the distribution is permitted under [§ 1.457-6(c)](/cfr/26/1.457-6.md?p=c).
      - (B) A distribution from an account for which the total amount deferred is not in excess of the dollar limit under [section 411(a)(11)(A)](/cfr/26/411.md?p=a-11-A) to the extent the distribution is permitted under [§ 1.457-6(e)](/cfr/26/1.457-6.md?p=e).
    - (ii) **Initial election to defer commencement of distributions—**
      - (A) **In general.** An eligible plan of a tax-exempt entity may provide a period for making an initial election during which the participant or beneficiary may elect, in accordance with the terms of the plan, to defer the payment of some or all of the amounts deferred to a fixed or determinable future time. The period for making this initial election must expire prior to the first time that any such amounts would be considered made available under the plan under [paragraph (c)(2)(i)](#c-2-i) of this section.
      - (B) **Failure to make initial election to defer commencement of distributions.** Generally, if no initial election is made by a participant or beneficiary under this [paragraph (c)(2)(ii)](#c-2-ii), then the amounts deferred under an eligible plan of a tax-exempt entity are considered made available and taxable to the participant or beneficiary in accordance with [paragraph (c)(2)(i)](#c-2-i) of this section at the earliest time, on or after severance from employment (but in no event later than the date on which distributions must commence pursuant to [section 401(a)(9)](/cfr/26/401.md?p=a-9)), that distribution is permitted to commence under the terms of the plan. However, the plan may provide for a default payment schedule that applies if no election is made. If the plan provides for a default payment schedule, the amounts deferred are includible in the gross income of the participant or beneficiary in the year the amounts deferred are first made available under the terms of the default payment schedule.
    - (iii) **Additional election to defer commencement of distribution.** An eligible plan of a tax-exempt entity is permitted to provide that a participant or beneficiary who has made an initial election under [paragraph (c)(2)(ii)(A)](#c-2-ii-A) of this section may make one additional election to defer (but not accelerate) commencement of distributions under the plan before distributions have commenced in accordance with the initial deferral election under [paragraph (c)(2)(ii)(A)](#c-2-ii-A) of this section. Amounts payable to a participant or beneficiary under an eligible plan of a tax-exempt entity are not treated as made available merely because the plan allows the participant to make an additional election under this [paragraph (c)(2)(iii)](#c-2-iii). A participant or beneficiary is not precluded from making an additional election to defer commencement of distributions merely because the participant or beneficiary has previously received a distribution under [§ 1.457-6(c)](/cfr/26/1.457-6.md?p=c) because of an unforeseeable emergency, has received a distribution of smaller amounts under [§ 1.457-6(e)](/cfr/26/1.457-6.md?p=e), has made (and revoked) other deferral or method of payment elections within the initial election period, or is subject to a default payment schedule under which the commencement of benefits is deferred (for example, until a participant is age 65).
    - (iv) **Election as to method of payment.** An eligible plan of a tax-exempt entity may provide that an election as to the method of payment under the plan may be made at any time prior to the time the amounts are distributed in accordance with the participant or beneficiary's initial or additional election to defer commencement of distributions under paragraph [(c)(2)(ii)](#c-2-ii) or [(iii)](#c-2-iii) of this section. Where no method of payment is elected, the entire amount deferred will be includible in the gross income of the participant or beneficiary when the amounts first become made available in accordance with a participant's initial or additional elections to defer under paragraphs [(c)(2)(ii)](#c-2-ii) and [(iii)](#c-2-iii) of this section, unless the eligible plan provides for a default method of payment (in which case amounts are considered made available and taxable when paid under the terms of the default payment schedule). A method of payment means a distribution or a series of periodic distributions commencing on a date determined in accordance with paragraph [(c)(2)(ii)](#c-2-ii) or [(iii)](#c-2-iii) of this section.
  - (3) **Examples.** The provisions of this [paragraph (c)](#c) are illustrated by the following examples:

# §1.457-8. Funding rules for eligible plans.

- (a) **Eligible governmental plans—**
  - (1) **In general.** In order to be an eligible governmental plan, all amounts deferred under the plan, all property and rights purchased with such amounts, and all income attributable to such amounts, property, or rights, must be held in trust for the exclusive benefit of participants and their beneficiaries. A trust described in this [paragraph (a)](#a) that also meets the requirements of [§§ 1.457-3 through 1.457-10](/cfr/26/1.457-3..1.457-10.md) is treated as an organization exempt from tax under [section 501(a)](/cfr/26/501.md?p=a), and a participant's or beneficiary's interest in amounts in the trust is includible in the gross income of the participants and beneficiaries only to the extent, and at the time, provided for in [section 457(a)](/cfr/26/457.md?p=a) and [§§ 1.457-4 through 1.457-10](/cfr/26/1.457-4..1.457-10.md).
  - (2) **Trust requirement.**
    - (i) A trust described in this [paragraph (a)](#a) must be established pursuant to a written agreement that constitutes a valid trust under State law. The terms of the trust must make it impossible, prior to the satisfaction of all liabilities with respect to participants and their beneficiaries, for any part of the assets and income of the trust to be used for, or diverted to, purposes other than for the exclusive benefit of participants and their beneficiaries.
    - (ii) Amounts deferred under an eligible governmental plan must be transferred to a trust within a period that is not longer than is reasonable for the proper administration of the participant accounts (if any). For purposes of this requirement, the plan may provide for amounts deferred for a participant under the plan to be transferred to the trust within a specified period after the date the amounts would otherwise have been paid to the participant. For example, the plan could provide for amounts deferred under the plan at the election of the participant to be contributed to the trust within 15 business days following the month in which these amounts would otherwise have been paid to the participant.
  - (3) **Custodial accounts and annuity contracts treated as trusts—**
    - (i) **In general.** For purposes of the trust requirement of this [paragraph (a)](#a), custodial accounts and annuity contracts described in [section 401(f)](/cfr/26/401.md?p=f) that satisfy the requirements of this [paragraph (a)(3)](#a-3) are treated as trusts under rules similar to the rules of [section 401(f)](/cfr/26/401.md?p=f). Therefore, the provisions of [§ 1.401(f)-1(b)](/cfr/26/1.401..1.md) will generally apply to determine whether a custodial account or an annuity contract is treated as a trust. The use of a custodial account or annuity contract as part of an eligible governmental plan does not preclude the use of a trust or another custodial account or annuity contract as part of the same plan, provided that all such vehicles satisfy the requirements of section [457(g)(1)](/cfr/26/457.md?p=g-1) and [(3)](/cfr/26/457.md?p=g-3) and paragraphs [(a)(1)](#a-1) and [(2)](#a-2) of this section and that all assets and income of the plan are held in such vehicles.
    - (ii) **Custodial accounts—**
      - (A) **In general.** A custodial account is treated as a trust, for purposes of [section 457(g)(1)](/cfr/26/457.md?p=g-1) and paragraphs [(a)(1)](#a-1) and [(2)](#a-2) of this section, if the custodian is a bank, as described in [section 408(n)](/cfr/26/408.md?p=n), or a person who meets the nonbank trustee requirements of [paragraph (a)(3)(ii)(B)](#a-3-ii-B) of this section, and the account meets the requirements of paragraphs [(a)(1)](#a-1) and [(2)](#a-2) of this section, other than the requirement that it be a trust.
      - (B) **Nonbank trustee status.** The custodian of a custodial account may be a person other than a bank only if the person demonstrates to the satisfaction of the Commissioner that the manner in which the person will administer the custodial account will be consistent with the requirements of section [457(g)(1)](/cfr/26/457.md?p=g-1) and [(3)](/cfr/26/457.md?p=g-3). To do so, the person must demonstrate that the requirements of [§ 1.408-2(e)(2) through (6)](/cfr/26/1.408-2.md?p=e-2..e-6) (relating to nonbank trustees) are met. The written application must be sent to the address prescribed by the Commissioner in the same manner as prescribed under [§ 1.408-2(e)](/cfr/26/1.408-2.md?p=e). To the extent that a person has already demonstrated to the satisfaction of the Commissioner that the person satisfies the requirements of [§ 1.408-2(e)](/cfr/26/1.408-2.md?p=e) in connection with a qualified trust (or custodial account or annuity contract) under [section 401(a)](/cfr/26/401.md?p=a), that person is deemed to satisfy the requirements of this [paragraph (a)(3)(ii)(B)](#a-3-ii-B).
    - (iii) **Annuity contracts.** An annuity contract is treated as a trust for purposes of [section 457(g)(1)](/cfr/26/457.md?p=g-1) and [paragraph (a)(1)](#a-1) of this section if the contract is an annuity contract, as defined in [section 401(g)](/cfr/26/401.md?p=g), that has been issued by an insurance company qualified to do business in the State, and the contract meets the requirements of paragraphs [(a)(1)](#a-1) and [(2)](#a-2) of this section, other than the requirement that it be a trust. An annuity contract does not include a life, health or accident, property, casualty, or liability insurance contract.
  - (4) **Combining assets.** [Reserved]
- (b) **Eligible plans maintained by tax-exempt entity—**
  - (1) **General rule.** In order to be an eligible plan of a tax-exempt entity, the plan must be unfunded and plan assets must not be set aside for participants or their beneficiaries. Under [section 457(b)(6)](/cfr/26/457.md?p=b-6) and this [paragraph (b)](#b), an eligible plan of a tax-exempt entity must provide that all amounts deferred under the plan, all property and rights to property (including rights as a beneficiary of a contract providing life insurance protection) purchased with such amounts, and all income attributable to such amounts, property, or rights, must remain (until paid or made available to the participant or beneficiary) solely the property and rights of the eligible employer (without being restricted to the provision of benefits under the plan), subject only to the claims of the eligible employer's general creditors.
  - (2) **Additional requirements.** For purposes of [paragraph (b)(1)](#b-1) of this section, the plan must be unfunded regardless of whether or not the amounts were deferred pursuant to a salary reduction agreement between the eligible employer and the participant. Any funding arrangement under an eligible plan of a tax-exempt entity that sets aside assets for the exclusive benefit of participants violates this requirement, and amounts deferred are generally immediately includible in the gross income of plan participants and beneficiaries. Nothing in this [paragraph (b)](#b) prohibits an eligible plan from permitting participants and their beneficiaries to make an election among different investment options available under the plan, such as an election affecting the investment of the amounts described in [paragraph (b)(1)](#b-1) of this section.

# §1.457-9. Effect on eligible plans when not administered in accordance with eligibility requirements.

- (a) **Eligible governmental plans.** A plan of a State ceases to be an eligible governmental plan on the first day of the first plan year beginning more than 180 days after the date on which the Commissioner notifies the State in writing that the plan is being administered in a manner that is inconsistent with one or more of the requirements of §§ [1.457-3 through 1.457-8](/cfr/26/1.457-3..1.457-8.md) or [1.447-10](/cfr/26/1.447-10.md). However, the plan may correct the plan inconsistencies specified in the written notification before the first day of that plan year and continue to maintain plan eligibility. If a plan ceases to be an eligible governmental plan, amounts subsequently deferred by participants will be includible in income when deferred, or, if later, when the amounts deferred cease to be subject to a substantial risk of forfeiture, as provided at [§ 1.457-11](/cfr/26/1.457-11.md). Amounts deferred before the date on which the plan ceases to be an eligible governmental plan, and any earnings thereon, will be treated as if the plan continues to be an eligible governmental plan and will not be includible in participant's or beneficiary's gross income until paid to the participant or beneficiary.
- (b) **Eligible plans of tax-exempt entities.** A plan of a tax-exempt entity ceases to be an eligible plan on the first day that the plan fails to satisfy one or more of the requirements of [§§ 1.457-3 through 1.457-8](/cfr/26/1.457-3..1.457-8.md), or [§ 1.457-10](/cfr/26/1.457-10.md). See [§ 1.457-11](/cfr/26/1.457-11.md) for rules regarding the treatment of an ineligible plan.

# §1.457-10. Miscellaneous provisions.

- (a) **Plan terminations and frozen plans—**
  - (1) **In general.** An eligible employer may amend its plan to eliminate future deferrals for existing participants or to limit participation to existing participants and employees. An eligible plan may also contain provisions that permit plan termination and permit amounts deferred to be distributed on termination. In order for a plan to be considered terminated, amounts deferred under an eligible plan must be distributed to all plan participants and beneficiaries as soon as administratively practicable after termination of the eligible plan. The mere provision for, and making of, distributions to participants or beneficiaries upon a plan termination will not cause an eligible plan to cease to satisfy the requirements of [section 457(b)](/cfr/26/457.md?p=b) or the regulations.
  - (2) **Employers that cease to be eligible employers—**
    - (i) **Plan not terminated.** An eligible employer that ceases to be an eligible employer may no longer maintain an eligible plan. If the employer was a tax-exempt entity and the plan is not terminated as permitted under [paragraph (a)(2)(ii)](#a-2-ii) of this section, the tax consequences to participants and beneficiaries in the previously eligible (unfunded) plan of an ineligible employer are determined in accordance with either [section 451](/cfr/26/451.md) if the employer becomes an entity other than a State or [§ 1.457-11](/cfr/26/1.457-11.md) if the employer becomes a State. If the employer was a State and the plan is neither terminated as permitted under [paragraph (a)(2)(ii)](#a-2-ii) of this section nor transferred to another eligible plan of that State as permitted under [paragraph (b)](#b) of this section, the tax consequences to participants in the previously eligible governmental plan of an ineligible employer, the assets of which are held in trust pursuant to [§ 1.457-8(a)](/cfr/26/1.457-8.md?p=a), are determined in accordance with [section 402(b)](/cfr/26/402.md?p=b) ([section 403(c)](/cfr/26/403.md?p=c) in the case of an annuity contract) and the trust is no longer to be treated as a trust that is exempt from tax under [section 501(a)](/cfr/26/501.md?p=a).
    - (ii) **Plan termination.** As an alternative to determining the tax consequences to the plan and participants under [paragraph (a)(2)(i)](#a-2-i) of this section, the employer may terminate the plan and distribute the amounts deferred (and all plan assets) to all plan participants as soon as administratively practicable in accordance with [paragraph (a)(1)](#a-1) of this section. Such distribution may include eligible rollover distributions in the case of a plan that was an eligible governmental plan. In addition, if the employer is a State, another alternative to determining the tax consequences under [paragraph (a)(2)(i)](#a-2-i) of this section is to transfer the assets of the eligible governmental plan to an eligible governmental plan of another eligible employer within the same State under the plan-to-plan transfer rules of [paragraph (b)](#b) of this section.
  - (3) **Examples.** The provisions of this [paragraph (a)](#a) are illustrated by the following examples:
- (b) **Plan-to-plan transfers—**
  - (1) **General rule.** An eligible governmental plan may provide for the transfer of amounts deferred by a participant or beneficiary to another eligible governmental plan if the conditions in paragraphs [(b)(2)](#b-2), [(3)](#b-3), or [(4)](#b-4) of this section are met. An eligible plan of a tax-exempt entity may provide for transfers of amounts deferred by a participant to another eligible plan of a tax-exempt entity if the conditions in [paragraph (b)(5)](#b-5) of this section are met. In addition, an eligible governmental plan may accept transfers from another eligible governmental plan as described in the first sentence of this [paragraph (b)(1)](#b-1), and an eligible plan of a tax-exempt entity may accept transfers from another eligible plan of a tax-exempt entity as described in the preceding sentence. However, a State may not transfer the assets of its eligible governmental plan to a tax-exempt entity's eligible plan and the plan of a tax-exempt entity may not accept such a transfer. Similarly, a tax-exempt entity may not transfer the assets of its eligible plan to an eligible governmental plan and an eligible governmental plan may not accept such a transfer. In addition, if the conditions in [paragraph (b)(4)](#b-4) of this section (relating to permissive past service credit and repayments under [section 415](/cfr/26/415.md)) are met, an eligible governmental plan of a State may provide for the transfer of amounts deferred by a participant or beneficiary to a qualified plan (under [section 401(a)](/cfr/26/401.md?p=a)) maintained by a State. However, a qualified plan may not transfer assets to an eligible governmental plan or to an eligible plan of a tax-exempt entity, and an eligible governmental plan or the plan of a tax-exempt entity may not accept such a transfer.
  - (2) **Requirements for post-severance plan-to-plan transfers among eligible governmental plans.** A transfer under [paragraph (b)(1)](#b-1) of this section from an eligible governmental plan to another eligible governmental plan is permitted if the following conditions are met—
    - (i) The transferor plan provides for transfers;
    - (ii) The receiving plan provides for the receipt of transfers;
    - (iii) The participant or beneficiary whose amounts deferred are being transferred will have an amount deferred immediately after the transfer at least equal to the amount deferred with respect to that participant or beneficiary immediately before the transfer; and
    - (iv) In the case of a transfer for a participant, the participant has had a severance from employment with the transferring employer and is performing services for the entity maintaining the receiving plan.
  - (3) **Requirements for plan-to-plan transfers of all plan assets of eligible governmental plan.** A transfer under [paragraph (b)(1)](#b-1) of this section from an eligible governmental plan to another eligible governmental plan is permitted if the following conditions are met—
    - (i) The transfer is from an eligible governmental plan to another eligible governmental plan within the same State;
    - (ii) All of the assets held by the transferor plan are transferred;
    - (iii) The transferor plan provides for transfers;
    - (iv) The receiving plan provides for the receipt of transfers;
    - (v) The participant or beneficiary whose amounts deferred are being transferred will have an amount deferred immediately after the transfer at least equal to the amount deferred with respect to that participant or beneficiary immediately before the transfer; and
    - (vi) The participants or beneficiaries whose deferred amounts are being transferred are not eligible for additional annual deferrals in the receiving plan unless they are performing services for the entity maintaining the receiving plan.
  - (4) **Requirements for plan-to-plan transfers among eligible governmental plans of the same employer.** A transfer under [paragraph (b)(1)](#b-1) of this section from an eligible governmental plan to another eligible governmental plan is permitted if the following conditions are met—
    - (i) The transfer is from an eligible governmental plan to another eligible governmental plan of the same employer (and, for this purpose, the employer is not treated as the same employer if the participant's compensation is paid by a different entity);
    - (ii) The transferor plan provides for transfers;
    - (iii) The receiving plan provides for the receipt of transfers;
    - (iv) The participant or beneficiary whose amounts deferred are being transferred will have an amount deferred immediately after the transfer at least equal to the amount deferred with respect to that participant or beneficiary immediately before the transfer; and
    - (v) The participant or beneficiary whose deferred amounts are being transferred is not eligible for additional annual deferrals in the receiving plan unless the participant or beneficiary is performing services for the entity maintaining the receiving plan.
  - (5) **Requirements for post-severance plan-to-plan transfers among eligible plans of tax-exempt entities.** A transfer under [paragraph (b)(1)](#b-1) of this section from an eligible plan of a tax-exempt employer to another eligible plan of a tax-exempt employer is permitted if the following conditions are met—
    - (i) The transferor plan provides for transfers;
    - (ii) The receiving plan provides for the receipt of transfers;
    - (iii) The participant or beneficiary whose amounts deferred are being transferred will have an amount deferred immediately after the transfer at least equal to the amount deferred with respect to that participant or beneficiary immediately before the transfer; and
    - (iv) In the case of a transfer for a participant, the participant has had a severance from employment with the transferring employer and is performing services for the entity maintaining the receiving plan.
  - (6) **Treatment of amount transferred following a plan-to-plan transfer between eligible plans.** Following a transfer of any amount between eligible plans under [paragraphs (b)(1) through (b)(5)](#b-1..b-5) of this section—
    - (i) The transferred amount is subject to the restrictions of [§ 1.457-6](/cfr/26/1.457-6.md) (relating to when distributions are permitted to be made to a participant under an eligible plan) in the receiving plan in the same manner as if the transferred amount had been originally been deferred under the receiving plan if the participant is performing services for the entity maintaining the receiving plan, and
    - (ii) In the case of a transfer between eligible plans of tax-exempt entities, except as otherwise determined by the Commissioner, the transferred amount is subject to [§ 1.457-7(c)(2)](/cfr/26/1.457-7.md?p=c-2) (relating to when amounts are considered to be made available under an eligible plan of a tax-exempt entity) in the same manner as if the elections made by the participant or beneficiary under the transferor plan had been made under the receiving plan.
  - (7) **Examples.** The provisions of [paragraphs (b)(1) through (6)](#b-1..b-6) of this section are illustrated by the following examples:
  - (8) **Purchase of permissive service credit by plan-to-plan transfers from an eligible governmental plan to a qualified plan—**
    - (i) **General rule.** An eligible governmental plan of a State may provide for the transfer of amounts deferred by a participant or beneficiary to a defined benefit governmental plan (as defined in [section 414(d)](/cfr/26/414.md?p=d)), and no amount shall be includible in gross income by reason of the transfer, if the conditions in [paragraph (b)(8)(ii)](#b-8-ii) of this section are met. A transfer under this [paragraph (b)(8)](#b-8) is not treated as a distribution for purposes of [§ 1.457-6](/cfr/26/1.457-6.md). Therefore, such a transfer may be made before severance from employment.
    - (ii) **Conditions for plan-to-plan transfers from an eligible governmental plan to a qualified plan.** A transfer may be made under this [paragraph (b)(8)](#b-8) only if the transfer is either—
      - (A) For the purchase of permissive service credit (as defined in [section 415(n)(3)(A)](/cfr/26/415.md?p=n-3-A)) under the receiving defined benefit governmental plan; or
      - (B) **A repayment to which section 415 does not apply by reason of section 415(k)(3).**
    - (iii) **Example.** The provisions of this [paragraph (b)(8)](#b-8) are illustrated by the following example:
- (c) **Qualified domestic relations orders under eligible plans—**
  - (1) **General rule.** An eligible plan does not become an ineligible plan described in [section 457(f)](/cfr/26/457.md?p=f) solely because its administrator or sponsor complies with a qualified domestic relations order as defined in [section 414(p)](/cfr/26/414.md?p=p), including an order requiring the distribution of the benefits of a participant to an alternate payee in advance of the general rules for eligible plan distributions under [§ 1.457-6](/cfr/26/1.457-6.md). If a distribution or payment is made from an eligible plan to an alternate payee pursuant to a qualified domestic relations order, rules similar to the rules of [section 402(e)(1)(A)](/cfr/26/402.md?p=e-1-A) shall apply to the distribution or payment.
  - (2) **Examples.** The provisions of this [paragraph (c)](#c) are illustrated by the following examples:
- (d) **Death benefits and life insurance proceeds.** A death benefit plan under [section 457(e)(11)](/cfr/26/457.md?p=e-11) is not an eligible plan. In addition, no amount paid or made available under an eligible plan as death benefits or life insurance proceeds is excludable from gross income under [section 101](/cfr/26/101.md).
- (e) **Rollovers to eligible governmental plans—**
  - (1) **General rule.** An eligible governmental plan may accept contributions that are eligible rollover distributions (as defined in [section 402(c)(4)](/cfr/26/402.md?p=c-4)) made from another eligible retirement plan (as defined in [section 402(c)(8)(B)](/cfr/26/402.md?p=c-8-B)) if the conditions in [paragraph (e)(2)](#e-2) of this section are met. Amounts contributed to an eligible governmental plan as eligible rollover distributions are not taken into account for purposes of the annual limit on annual deferrals by a participant in [§ 1.457-4(c)](/cfr/26/1.457-4.md?p=c) or [§ 1.457-5](/cfr/26/1.457-5.md), but are otherwise treated in the same manner as amounts deferred under [section 457](/cfr/26/457.md) for purposes of [§§ 1.457-3 through 1.457-9](/cfr/26/1.457-3..1.457-9.md) and this section.
  - (2) **Conditions for rollovers to an eligible governmental plan.** An eligible governmental plan that permits eligible rollover distributions made from another eligible retirement plan to be paid into the eligible governmental plan is required under this [paragraph (e)(2)](#e-2) to provide that it will separately account for any eligible rollover distributions it receives. A plan does not fail to satisfy this requirement if it separately accounts for particular types of eligible rollover distributions (for example, if it maintains a separate account for eligible rollover distributions attributable to annual deferrals that were made under other eligible governmental plans and a separate account for amounts attributable to other eligible rollover distributions), but this requirement is not satisfied if any such separate account includes any amount that is not attributable to an eligible rollover distribution.
  - (3) **Example.** The provisions of this [paragraph (e)](#e) are illustrated by the following example:
- (f) **Deemed IRAs under eligible governmental plans.** See regulations under [section 408(q)](/cfr/26/408.md?p=q) for guidance regarding the treatment of separate accounts or annuities as individual retirement plans (IRAs).