Plan Doc

A governmental 457(b) plan excludes from participation employees regularly scheduled to work fewer than 36 hours per week. The plan also provides that an employee will enter the plan on the first day of the calendar quarter next following the later of the employee's (i) completion of 6 months of service during which the employee is regularly scheduled to work at least 36 hours per week, or (ii) attainment of age 21. Anyone see a problem with these eligibility and entry date provisions? Also, must a governmental 457(b) plan allow long-term part-time employees to make elective deferrals? How, if at all, might state law (specifically, Colorado's) affect the answer to these questions?

Thanks, Peter Gulia/Bruce1, for these suggestions!

Litigation involving a number of adult children and stepchildren of the owner of a single IRA account, who died in 2023, are now resolving their dispute by a settlement allocating a share of the IRA to each of them. The IRA owner had been taking RMDs but died without having taken her 2023 RMD, which still has not been distributed. My understanding is that the 2023 RMD could have been taken by any one of the beneficiaries in the year of the IRA owner's death. Is there any way the missed 2023 RMD can now be distributed to only one of the beneficiaries so that just one Form 5329 needs to be filed or must the 2023 RMD be allocated among all of the beneficiaries in proportion to their respective shares of the IRA to be received under the settlement and a Form 5329 be filed by each of them for a corresponding share of the 2023 RMD?

How is that even possible? You think of everything!

Thanks, Peter Gulia. In my situation, there isn't any question as to whether the plan sponsor is a church. It is a church. Does the fact that a church is not an eligible employer under Section 457 mean that a NQDC plan sponsored by a church escapes the rule that benefits are taxable upon vesting, which rule applies to deferred compensation plans of non-church tax-exempt organization plans governed by Section 457(f)? In other words, can a church NQDC plan that isn't covered by Section 457, including presumably Section 457(f), be treated the same as a for-profit company NQDC plan in allowing benefits to vest without those benefits being taken into income upon vesting?

Thank you, Tom Veal. As a follow-up, my understanding is that churches are not subject to Internal Revenue Code Section 457, which I believe implies that the rule governing 457(f) plans of non-church tax-exempt organizations requiring that deferred compensation is taxable upon vesting does not apply. Is it then safe to say that for a church NQDC plan, vested benefits are not taxed until the compensation is paid or otherwise made available to a participant?

Can a church offer a nonqualified deferred compensation plan, subject to Code Section 409A, to all employees or must participation be limited to a top-hat group?

A U.S. based tax-exempt organization 457(b) plan sponsor wants its new CFO, an Australian citizen who does not have a social security number, to participate in the plan. I'm only guessing, but I would think that a non-U.S. citizen earning compensation within the U.S. from a U.S. employer would need a social security number unless the individual is exempt from U.S. taxes, most likely pursuant to a tax treaty between the two countries, although I'm no subject matter expert. If so exempt, then presumably there is no advantage to the CFO participating in the plan (other than perhaps receiving an employer match if the employer decides to make one). Anyone with other thoughts concerning this situation? Absent a social security number, I'm not sure our systems will even allow us to establish a plan account for this individual.

Peter Gulia, The document I'm working from is under the heading, "Adoption Agreement for Great-West Trust Company, LLC Non-Standardized Governmental 401(a) Pre-Approved Plan," and includes the following language applicable to any exclusion of part-time, temporary or seasonal employees: "If option 4. - 6. (part-time, temporary and/or seasonal exclusions) is selected, when any such excluded Employee actually completes 1 Year of Service, then such Employee will no longer be part of this excluded class. For this purpose, the Hours of Service method will be used for the 1 Year of Service override . . ." So, it appears the document drafters, anyhow, assumed that a governmental 401(a) plan is subject to the requirement that part-time, temporary and seasonal employees not be excluded from the plan upon meeting the fail-safe. Do you think otherwise? I don't believe there is a problem with the 457(b) plan not providing a similar fail-safe, per se, except that it does have the effect of negating the operation of the fail-safe under the 401(a) plan, since contributions under the 401(a) plan depend entirely on an employee's participation in the 457(b) plan.

A governmental 401(a) plan excludes part-time, temporary and seasonal employees, subject to a 12-month, 1000 hour fail-safe, which makes the exclusion inapplicable if satisfied. The only plan benefit is an employer contribution equal to 5% of plan compensation to the account of any participant who defers at least 3.5% of compensation under the employer's 457(b) plan. The 457(b) plan excludes part-time, temporary and seasonal employees but does not grant an exception for employees who complete 12 months of service and 1000 hours. The exclusion under the 457(b) plan, therefore, has the effect of depriving part-time, temporary and seasonal employees who meet the 401(a) plan's fail-safe from receiving any benefit under the 401(a) plan, as these employees are not able to defer under the 457(b) plan. This circumstance appears to me to present a tax qualification issue for the 401(a) plan. Any thoughts?

Thanks, all. I sense that making the nonelective contribution discretionary with the employer will work, rather than having the contribution based upon x% of compensation or some other formula that would appear to base the contribution on services performed before the participant entered the plan.

Fiscal year 6/30 organization wants to contribute funds in June, 2024 to a 457(f) plan being adopted on June 1, 2024. I am told the employer has been "setting aside" funds to contribute on behalf of the executive for past services for the organization. This sounds to me like a 409A, if not a 457(f) violation, as I don't believe contributions can be made for services performed before the executive has become a participant. Nor do I believe it permissible to make the plan retroactive to a date before its adoption such that the executive could become a participant as of an earlier date, July 1, 2023, for example. Am I right? If so, can a contribution be characterized as something other than for past services to enable the contribution in the current fiscal year even though the plan didn't exist for the first 11 months of the fiscal year?

Thanks, CuseFan; the pastor will be pleased with this earthly offering!

A church, which is recognized as a 501(c)(3) organization, sponsors a 403(b) plan and wants to establish a nonqualified deferred compensation plan for its senior pastor. The NQDC plan will be designed to comply with Internal Revenue Code Section 409A. Are contributions to the church's NQDC plan taxable upon vesting, as typically occurs with non-church tax-exempt organization NQDC plans?

Thank you, Lou S. and CuseFan; it looks like a discriminatory compensation problem more than it does a coverage issue.