not-for-profit tax emempt nonqualified

[k man]

org wants to have a plan with nonelective employer contributions. would this plan be subject to 457(f) as well as 409A?

[QDROphile]

Could be 457(b) if the contributions stay within the limits.

[k man]

there will be no deferrals (employee contributions).

[Guest mjb]

457(f)/409A apply if the employer contributions are subject to a substantial risk of forfeiture, i.e., benefits will not be paid until the employee is not required to perform substantial services for the employer. How much will the er contribute each year?

[John Feldt ERPA CPC QPA]

All additions under a 457(b) plan would be considered as an "annual deferral", even if no election is made by the participant. If the goal is to contribute $15,500 or less (2007 limit), then a 457(b) plan would suffice as QDROphile noted.

If the goal is to put more away than $15,500 then someone else needs to comment about the 457(f) and 409A issues.

[k man]

so what is the key criteria that makes a plan eligible (457(b)) vs. ineligible 457(f)? is it the deferral limit. in this plan there wont be employee money but it might exceed the limit (though i doubt it).

[jpod]

The limit on contributions to a 457(b) is the same as 401k, but all contributions are counted towards the limit, elective and non-elective. The annual age 50+ catch-up is available if the employer is a governmental entity (but not if it a non-governmental nonprofit). There is also a special 457b catch-up for people who are very close to the 457b plan's normal retirement age.

There are also a bunch of document and operating rules required in order to have a compliant 457b plan. I can't recite them all here.

[John Feldt ERPA CPC QPA]

Yes, the limit is the main key. Employee elected deferrals and employer provided contributions are all combined together and usually called "annual deferrals". Basically, the total "annual deferral" cannot exceed $15,500 (but there's also a special catch-up provision during the last 3 years prior to normal retirement age). Since you're talking about a non-profit plan sponsor, not a government, then there is not a $5,000 catch-up.

The "annual deferral" includes only vested amounts. Any amount that is not vested in the year contributed will not count against the limit that year. Any amounts that become vested later will count against the limit in place for the year that the vesting occurred. 457(b) plans never (okay, perhaps almost never) include a vesting schedule.

Also, regardless of whether it's an employer contribution or an employee elected deferral, in a 457(b) the entire amount is considered like an employee elective deferral for purposes of FICA and FUTA.

And, of course, its plan document would be written as a 457(b) eligible plan.

[Guest mjb]

Vesting is required for amounts deferred under an eligible plan. Reg 1.457-2(b). Amounts deferred under a 457(f) plan are excluded from income as long the amounts are subject to a substantial risk of forfeiture. 15,000 deferral which is subject to a substantial risk of forefeiture is a contaributon to a 457(f) Plan.

[John Feldt ERPA CPC QPA]

Hmmm. Here's some of Treasury Regulation 1.457-2(b):

(1) Annual deferral(s) means, with respect to a taxable year, the amount of compensation deferred under an eligible plan, whether by salary reduction or by nonelective employer contribution. The amount of compensation deferred under an eligible plan is taken into account as an annual deferral in the taxable year of the participant in which deferred,

or, if later,

the year in which the amount of compensation deferred is no longer subject to a substantial risk of forfeiture.

(2) If the amount of compensation deferred under the plan during a taxable year is not subject to a substantial risk of forfeiture, the amount taken into account as an annual deferral is not adjusted to reflect gain or loss allocable to the compensation deferred. If, however, the amount of compensation deferred under the plan during the taxable year is subject to a substantial risk of forfeiture, the amount of compensation deferred that is taken into account as an annual deferral in the taxable year in which the substantial risk of forfeiture lapses must be adjusted to reflect gain or loss allocable to the compensation deferred until the substantial risk of forfeiture lapses.

I really really really don't want to disagree with you mjb, but please confirm that "Vesting is required for amounts deferred under an eligible plan". Sorry, but under the regulation quoted, I fail to see the prohibition that you mention. Nor have I been successful in finding that prohibition anywhere else. Please help.

[jpod]

As a practical, operational matter, vesting is "required," because the deferred comp. is taken into account against the annual limit in the year in which it vests. However, if you wish to split hairs, no, it is not "required."

[Guest mjb]

While you can establish a 457(b) plan without requiring that a deferral be vested, the reg you cited confirms that a deferral is not counted for the 15.5 k limit under a 457(b) plan until it is vested. No vesting equals 0 amount deferred under 457(b).