457 Employer?

[Guest JD Colville]

IRC 457(e) defines an eligible employer for 457 plans as:

(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.

Does anyone agree or disagree with my interpretation that entities that are organized as independent boards pursuant to federal legislation and Indian Tribes would not be "eligible employers" for 457 purposes and so would not be subject to either the $8,000 deferral limit or the trust requirement? If these employers are not subject to 457, are they then subject to the same deferred compensation rules applicable to corporate plans?

Thanks for any guidance.

Jim Colville

[Carol V. Calhoun]

Yes, and yes. Is that clear enough?

Seriously, plans of the federal government and Indian tribes are exempt from 457. Thus, they are subject to the same deferred compensation rules as private companies, except that since they are exempt from ERISA, their plans can cover rank and file employees as well as top management and highly compensated employees.

[Guest SSaunders]

How do your reach your conclusion that just because Indian tribes are not specifically mentioned under 457(e) that they are exempt? If Indian tribes are exempt from 457(e) and would be subject to regulations concerning private entities, and an Indian tribe establishes a Supplemental Income Plan (with strictly employer contributions), can that tribe use a regular trust or must it use a Rabbi-type trust. Also, would the limitations of 457© apply to that Indian tribe if it was using a combination of 401(k) and the Supplemental Income Plan for its council members, which are salaried positions?

[Carol V. Calhoun]

The normal rule under section 451 is that amounts from a nonqualified plan are not taxable to a participant until they are paid or made available. However, two exceptions apply. First, if the money is put into a nonqualified trust (other than a rabbi trust), the amount would be taxable under 402(B). Second, if the amount is deferred under a plan maintained by a state or local government or nonprofit entity, it would be taxable under 457(f). Because neither of these rules would apply to a rabbi trust (or unfunded arrangement) of a federal government agency or an Indian tribe, the normal rules of section 451 would apply.