What is NOT a reason a state or local government would establish a Section 457 plan?

A Section 457 plan is a type of retirement savings plan specifically designed for government employees and certain non-profit organizations. One of the key features of this plan is that it allows for tax-deferred contributions, meaning that participants don't incur income tax on their contributions or investment gains until they withdraw the funds.

Tax deductibility of employer contributions, while a benefit in various retirement plans such as 401(k) or 403(b) plans, does not apply to the same extent in Section 457 plans. In a 457 plan, contributions made by the employer are typically not counted as taxable income until distributed, rather than being deductible in the year they are made. This distinguishes Section 457 plans in terms of how the tax implications unfold for contributions.

Other aspects of Section 457 plans, such as eligibility for early withdrawal without penalties and a simplified administrative process, are foundational reasons that state or local governments might choose to establish this type of retirement savings program. Additionally, the flexibility in contribution limits allows employees to save more in certain situations, especially as they approach retirement, making these characteristics advantageous for both employees and employers.