Eligible/ineligible plans

[Guest Monster]

Please check me on this:

An eligible employer is a state/local government, or a non-church, non-governmental tax-exempt agency. An eligible employer can have an ineligible plan - or can become ineligible due to administration of the plan failing to meet requirements.

So what is an ineligible employer? Are these the non-governmental, non tax-exempt agencies that would establish a top-hat plan for a select group of management?

Is it fair to assume these would be "for profit" entities? (not always - but generally)

Who constitutes "ineligible" employers? Anyone not covered under the definition of an "eligible" employer? HELP.

[Carol V. Calhoun]

Internal Revenue Code section 457(e)(1) defines an "eligible employer" as follows:

(1) Eligible employer

The term "eligible employer" means--

           (A) a State, political subdivision of a State, and any agency or instrumentality of a State or political subdivision of a State, and

           (B) any other organization (other than a governmental unit) exempt from tax under this subtitle.

Internal Revenue Code section 457(e)(13) provides the following exception:

(13) Special rule for churches

The term "eligible employer" shall not include a church (as defined in section 3121(w)(3)(A)) or qualified church-controlled organization (as defined in section 3121(w)(3)(B)).

An "ineligible employer" would be any other employer, e.g., a church, a federal government agency, or a for-profit corporation.

In order to be an "eligible plan," a plan needs to meet all of the requirements of Internal Revenue Code section 457(B), including the requirement that the employer be an eligible employer.

[Guest Monster]

Then if I may inquire - regarding plans which are maintained by employers who are not "eligible" employers. Are these Top-Hat Plans? Or not necessarily?

Top-Hat Plans would would discriminate for a select group of management or highly compensated employees. Or am I missing something?

Is there such a thing as a 457 Plan of an ineligible employer which covers rank & file employees - rather than discriminating for the select group?

Is it that there are just plans of "eligible employers" (definition above) which are covered under 457(B) and the Top-Hat Plans?

[Guest Monster]

Or - is an ineligible employer not necessarily a top-hat plan, and can cover rank & file employees in a deferred status so long as the assets are subject to substantial risk of forfiture?

If true - who would set up these plans and why? Are they not eligible under the code for a 401(k)/like plan?

Of course, substantial risk of forfiture used to exist on the Governmental Plans but was removed by the requirements of the Small Business Job Protection Act of 1996.

[Carol V. Calhoun]

Any 457 or unfunded deferred compensation plan of an ERISA-covered employer must cover only a top hat group. That includes an unfunded deferred compensation plan of a private corporation (which would not be a 457 plan), or a 457 plan of a nongovernmental, nonchurch tax-exempt employer. Even though a nongovernmental, nonchurch tax-exempt employer is an "eligible employer" for 457 purposes, section 457 prevents such an employer from funding the 457 plan, and Title I of ERISA prevent the employer from extending an unfunded plan to anyone outside of the top hat group.