Ever seen an eligible 457 DB Plan?

[JWK]

Eligible employer sponsors a "bridge" plan that pays $400 per month to employees who terminate after age 55. Payments end at age 62, with the intent that payments are a bridge to Social Security benefits. Plan doesn't satisfy 2000-1 "severance pay plan criteria." If 457(f) applies, we have a tax problem because no substantial risk of forfeiture. Can this arrangement be treated as an eligible 457 plan? Has anyone seen this type of formula in an eligible plan? How do you calculate dollar limits under 457(B)(2)? Since there are no employee deferrals and no assets are set aside to pay benefits, is a 457(g) trust required?

[Guest Brent Rowell]

I'm "reading in" but it sounds like you're talking about an employer pay all severance arrangement (actually an early retirement incentive)

If so, I believe severance plans are an exception to 457 and not considered to be defferred compensation

Brent

[JWK]

You are correct that this arrangement is like a severance pay plan, and benefits are all employer-paid. However, it doesn't pass all of the criteria in Announcement 2000-1 to be treated as a severance plan. I understand that we aren't precluded from arguing that it's a severance pay plan just because we don't satisfy each and every criterion in 2000-1, but I wanted to have an alternate argument available in case of audit. Also, this arrangement has consistently been communicated as an early retirement plan, which makes it sound like deferred comp rather than severance.

[Guest Ralph Amadio]

Have seen a DB 457 once before-it defaulted in to a "plan or arrangement" under "f" since it did not meet the criteria of a severance plan, a deferred compensation plan, or a terminally funded 401(a) retirement incentive. My case was, however, previous to the governmental plan trust requirement. If the plan is for a not for profit, or possibly hasn't been updated, there may some "ways out". Another big consideration is whether payroll taxes are due of any kind.

[IRC401]

The situation may be worse than you think.

Is this benefit part of a window program, or is it a permanent benefit? Section 457(f) kicks in whenever an employer becomes entitled to the benefit even if he is not yet eligible to receive it.

[JWK]

Thanks, IRC401. That's the result I'm trying to avoid by characterizing this arrangement as an eligible plan.