What characterizes funded 457 plans?

Funded 457 plans are characterized by the fact that funds are held in a trust or custodial account specifically for employees. This means that the assets contributed to the plan are segregated from the employer's general assets, providing a level of security for participants. By being held in a trust or custodial account, the funds are protected from the claims of the employer's creditors, ensuring that they are available for the employees' retirement benefits.

This structure is essential because it enhances the security of the employees' retirement savings, providing them assurance that their contributions are safe and will be available for distribution upon retirement or other qualifying events. It demonstrates a commitment to safeguarding employees’ interests, as the funds are not accessible to the employer for operational needs.

In contrast, the other options highlight aspects that do not accurately describe a funded 457 plan. For example, stating that funds are subject to the employer's general creditors would apply to unfunded plans but does not pertain to funded plans designed to protect employees' assets. Similarly, gentlemen's agreements do not provide the legal protection and structure required for retirement plans; and the immediate payout upon employer discretion is not characteristic of how funded plans are managed or disbursed.