457(b) for Healthcare network

[Guest Vincer]

I am currently working on a plan for a large healthcare network. 20+ locations. According to a message posted previously there was an opinion that a 457(B) tax-exempt (top-hat) plan could not be set up under a master trust.

In the case I am working on, there is a master trust in place with each location submitting their respective payrole deductions for the qualified savings programs. They want to establish a 457(B) plan for the highly compensated employees and there intent is to operate one 457(B) plan and allow the select group of employees from each location to participate. CAN THEY DO THIS????

This sounds like a master trust arrangement to me.......

Before I suggest that this may not be a viable option with the new Pension Reform regulations I would like your opinion. Hopefully I have communicated this situation clearly enough for an opinion to be formed. Thanks in advance for your feedback!

Great Site by the way!!!

[Everett Moreland]

The plan must be unfunded to qualify as a 457(B) plan for a tax-exempt and as a top-hat plan under ERISA.

[mbozek]

V:I thought that the basic requirement for a 457(B) plan is that the assets be subject to the claims of the employers creditors in order to be unfunded. Any type of arrangement that meets this requirement whether a single or multiple trust is permissible. U should get qualified counsel to determine what is the nature of the arrangement.

[Guest Vincer]

I understand that the plan must be unfunded and available to general creditors. I am trying to figure out if the employer can establish just one 457(B) N-Q plan and allow employees from 20+ different entities within the network participate. Or will each entity have to establish their own 457(B).

Any Ideas???????

Thank you for the timely response.

[Carol V. Calhoun]

Because the money is in theory the property of the separate employers, I cannot see that there would be a problem, so long as each employer has a separate share and there is separate accounting for each. The only real constraint would be to make sure that the investments, accounting, etc. were permissible for tax-exempt organizations under the laws of your state.

[Guest Vincer]

THANK YOU!!!!

[mbozek]

Carol: aren't state laws on investments preempted under ERISA if this is a 457 plan? TXO employer should check with acountants to see if there is any reporting requirement on the 990 for deferred comp.

[Carol V. Calhoun]

State laws would not be preempted, because ERISA would not treat the assets as plan assets. (That's the only way the plan could be considered "unfunded.") But the state laws you would be concerned with would therefore not be those governing plan investments, but those governing investments of the employer. In some instances, state laws limit the types of investments charitable corporations can make.

[mbozek]

Carol: While any assets of the plan are subject to the claims of the employers general creditors, the plan itself, including the assets used to provide benefits are still subject to ERISA and are exempt from state law. The fact that ERISA does not regulate the investment of assets used to fund the NQ plan does not mean that the state can regulate the investment of the assets since state laws are preempted in applying to any aspect of the plan. Barrowclough v. Kidder Peabody, 752 F2d 923. The employer can segregate the assets of the plan in an earmarked fund or a grantor trust to separate them from other assets of the employer which are subject to state oversight or review. The analogy is to state regulation of welfare plans - ERISA preempts all state laws relating to the plan even though there is no regulation of the funding of such plans under ERISA. A state could not specify the means used to fund a health care plan provided by an employer just because the benefits are paid from the employer's general assets.

[Carol V. Calhoun]

The issue is whether a state's regulation of all assets held by, or in a grantor trust for, a charitable organization would be preempted in the case of a particular grantor trust that provided the measurement of benefits under an unfunded plan. I would think it very difficult to argue that although ERISA treated the assets as not being part of the plan for regulatory purposes, regulation of them would still be treated as regulation of an employee benefit plan for ERISA preemption purposes. (In Barrowclough v. Kidder Peabody, the issue was the construction and enforcement of something defined under ERISA as a plan, albeit a plan ERISA chose not to regulate, and the issue of whether a rabbi trust is part of the plan never arose.) I suppose we'll have to wait for a court decision to know the answer to this one.