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tax, that permits employees to contribute a portion of their
monthly salary through payroll deductions. The annual amount an
employee may contribute is limited, and contributions are not
includable in an employee's gross income in the year earned, but
is deferred until paid out or made available to the employee.
Sec. 457(a). We discussed the distinctions between section
401(a) qualified plans and section 457 plans in Rheal v.
Commissioner, T.C. Memo. 1989-525:
Qualified plans are required to comply with numerous
eligibility standards set forth in section 401(a). These
include nondiscrimination standards and minimum
participation, funding, and vesting standards. Sections
401(a)(3), (4), (7); 411 and 412. Section 457 plans,
however, are not subject to these requirements in general
and are, therefore, referred to as a type of nonqualified
plan. The litany of distinctions between a section 457 plan
and qualified plans is too extensive to warrant exhaustive
discussion here. One significant distinction noted is that
a qualified plan requires employees' benefits to be held in
an employees' trust and in all events an employee's right to
his accrued benefit derived from his own contributions must
be nonforfeitable. Sections 401(a)(7) and 411(a). By
contrast, a section 457 plan is not required to utilize an
employee's trust and by definition is prohibited from
establishing an employee's trust which provides for non-
forfeitable benefits. A section 457 plan, therefore, does
not constitute a qualified plan because it necessarily
violates qualified plan requirements. [Fn. ref. omitted.]
In light of the foregoing, petitioner's contention that PERS
is a deferred compensation plan within the meaning of section 457
is without merit. The PERS member handbook states that PERS is a
qualified pension plan and notes that tax provisions exclusive to
distribution from qualified plans and trusts may be applicable to
distributions from PERS, including an early withdrawal penalty
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