457(f) elective deferrals

[Guest Philip]

I have a client whose CEO wants to make elective deferrals to a 457(f) plan. He completely understands that his elective deferrals must be forfeitable. The question is, can he make an annual election as to the amount of the elective deferral (in December of each year, he would make an election as to the amount to be deferred in the following calendar year) or does he have to make a one-time upfront election for all years of employment? We can draft the plan either way.

[mbozek]

He can defer any amount he wants on an annual basis as long as the deferral agremeent is signed prior to the time the comp is earned. However, in some states, (NY), the amount he defers from his salary can be forfeited by board or employer action prior to retirement, not just from the claims of the employer creditors. Why not establish a 457(b) plan?

[Guest Philip]

We already have a 457(b) plan--he wants to defer more than he can in the 403(b) and 457(b).

[Kirk Maldonado]

mbozek:

Isn't there an ERISA pre-emption issue (at least in some limited circumstances) relating to state laws affecting forfeitures under the plan?

[mbozek]

I dont think this a preemption issue but is an issue of whether there are limits to board action permitted under state law. While there are ct cases stating that a NQDC plan cannot refuse to pay vested benefits which are contractually payable under the plan, I am not aware of any case which holds that employee salary reduction contributions to a NQDC plan must be vested and paid when the employee terminates. In some states an executive's non vested right to his contributions to a NQDC can be forfeited by action of the board or sr management. My point is that an executive who elects to defer comp without having a vested right to payment under the plan could have the benefits revoked by later board action if such action is permitted under state law. There is a major issue in the 140M payment to Dick Grasso, the former chairman of the NYSE as to whether he had a right to receive payment of 60M in NQDC which was paid early after Grasso made a request for the payment. The NYSE is a non profit corp under NY law and is exploring having the NY atty general bring an action to recover the payments as permitted under NY law even though they were approved by the NYSE Board. The NYSE may bring a law suit against against former board members who approved Grasso's NQDC payments and employment contract.

[Kirk Maldonado]

Thanks for clarifying that.