Plan Sponsor?

[Guest cosmo01]

We have a situation whereby there are five taxable employers that currently sponsor five separate nonqualified deferred comp plans. All five are part of the same controlled group of corporations. For administrative ease, we are combining the five plans into one. The parent corp of the entire controlled group will administer the plan - it is a tax-exempt entity. Do we have to have one of the five taxable entities sponsor the plan? Our concern with the tax-exempt entity sponsoring the plan is whether 457(f) will be implicated. Thoughts? Concerns? Insights?

[lbell]

A tax exempt organization providing deferred compensation must follow 457. There is a good article in the May/June 2003 Journal of Compensation that walks thru these issues. It is futrther limited by the new Split Dollar regs and the end of options as a viable planning tool for tax exempts.

[TCWalker]

Also consider where the deferred compensation is deemed earned and where the tax deduction will be taken at time of distribution.

[Guest jfp]

457 applies only to tax-exempt employers (and governmental employers, but they are not present in this case).

So, if the "employer" is a taxable entity, 457 would not apply to a deferral of compensation earned through work for that "employer." It shouldn't matter that in some fashion administration of the plan is occurring at the parent level, even if the parent is a tax-exempt entity.

[mbozek]

The rules for deferred comp under IRC 457 apply only to compensation for services performed for a tax exempt employer. Reg. 1.457-2(g). However, a NP does not claim a tax deduction for payment of deferred comp.