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Sequential/Successive Ineligible 457 Plans


Christine Roberts

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457(f) plan provides for 10 year cliff vesting schedule; executive director continues working through 10th year and full amount of contributions made to (f) plan are included in her taxable compensation in year 10.

We know that rolling risk of forfeiture is no longer permitted under 409A.

Is there any reason why the employer could not start a NEW 457(f) plan with a new 3- or 5- or more-year vesting schedule, in Year 11?

409A contains language preventing an employer from starting up a new deferred compensation plan within 3 years of affirmatively terminating and liquidating a plan but I don’t think that completion of a vesting schedule = plan termination for this purpose. Treas. Reg. 1.409A-3(j)(4)(ix)©. Particularly if plan is not limited to Exec. Dir. but also includes other top hat group members. Would welcome any comments pro or con.

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It depends on what you are trying to do. If you are trying to defer the same money that was deferred under the current 457(f) plan, that would be a problem. The services provided that relate to that money go back to the year the amounts were originally deferred. For example, an amount deferred in 2001 that vests in 2011 cannot be deferred under a new plan established in 2010, because the election (made before 12/31/2010) would come after the year the services are performed relating to that compensation (2001).

If you are trying to create a new plan to defer new compensation (for example, a 2010 plan that defers money earned in 2011), I do not see any problem with doing this.

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