Section 457 plan is a type of nonqualified deferred compensation plan established by state and local governments and certain tax-exempt organizations under Internal Revenue Code Section 457. These plans allow employees to defer a portion of their compensation on a tax-deferred basis, similar to 401(k) and 403(b) plans, but with distinct rules on contribution limits, withdrawals, and creditor protection. There are 457(b) eligible plans, which follow simpler rules and are common for government employees, and 457(f) ineligible plans, which allow additional deferrals for highly compensated employees but often involve substantial risk of forfeiture. Life insurance may be used as a funding or planning tool around Section 457 benefits.

Advisors working with public sector and nonprofit employees explain Section 457 plan features alongside other retirement savings vehicles, focusing on contribution limits, catch-up opportunities, and distribution rules. Financial planners help participants coordinate 457 deferrals with 401(k) or 403(b) contributions when multiple plans are available. In executive benefit planning for tax-exempt entities, consultants design 457(f) plans with careful vesting and forfeiture provisions, sometimes informally funding obligations with life insurance. Understanding Section 457 plans enables advisors to optimize retirement savings strategies for government and nonprofit clients while addressing unique tax and timing considerations.