What happens if someone chooses 10 year distribution of their 457 account and there are funds leftover after the ten year period? Or are all funds distributed in the tenth year regardless of the amount?
Thanks.

There are really two ways to deal with this one, and a lot depends on what the plan document says. In some instances, a 457 plan will either be funded through an annuity contract, or will purchase a 10-year annuity. In that case, an insurance company or other contract issuer promises to pay a certain amount each year for 10 years in exchange for the total value of the account. At that point, there is no amount left after the 10 years are up, because the contract issuer's obligation is complete.

The second, and more common, alternative is to have the contract pay out 1/10 of its total value in year one, 1/9 of its total value in year two, etc. In that case, 100% of the remaining value is paid out in year ten.

In the second example above (paying 1/10 in the first year and 1/9 in the next) it is possible for the payment in year 2 to be larger than in the prior year because of potential market fluctuations. If the market fluctuates substantially, this amount paid could be significantly larger than in the prior year. How does this reconcile with the requirement that payments be made in "substantially non-increasing" amounts?

I do not have the standing to give an answer with any authoriy. Therefore take this as gossip

1/10 1/9 1/8 1/7 etc. fits within "substantially equal rules" by formula. As you point out the payments may well be far from equal. The same sort of thing happens if one elects a variable annuity life payout. (Almost always a generally increasing payout) .... (guaranteed not to be uniform ... my comment)