Non Profit with 457(f) Plan

[Guest TAR]

I have member of the Board of Directors of a rehab facility come to me and is concerned over the appropriateness of having a 457(f) plan in a non profit organization. I do not have any 457 or 457(f) plans only qualified plans basically. So can anyone tell me how common this is or is not? Any problems related to...

Thanks

[E as in ERISA]

What is the concern? In my experience, they are used for "golden handcuffs" for key executives, etc. -- e.g., to get them to stay an extra few years with the promise of supplemental retirement benefits, etc.

[Guest TAR]

The board of directors are worried they are paying too much out in retirement benefits and wages. They pay 13% of comp for EE's with 10+ yrs of service plus they have 403(b) with match of 3.5% in addition to 457(f). As far as I know only one Exec is using 457(f) for $10,000 a year, but not fully utilizing the 403(b). The board does not like having the accrued benefit sitting in the general assets of the trust approx 60,000 right now. How long can they defer that payment?

[mbozek]

Is this a 457(b) plan and not a 457(f) plan since the annual deferral is within the $13,000 maximum permitted under 457(b) to an emplyee who does salary reduction. One risk to the employee is that 457 assets are subject to claims of the employer's creditors. The payments under a 457 plan are generally deferred until termination of service. Why not read the plan document to see when payment are made. I dont understand your reference to " general assets in the trust" since there should be no seperate entity. What type of plan is receiving 13% of comp? If the board has questons regarding deferral it should consult with counsel or the accountants for the employer.

[Guest TAR]

It is set up as a 457(f). As far as :General assets of the trust" my mistake general assets of the non profit I am usually talking about p/s trusts oops. As far as the 13% it is a cross tested p/s 7% for ee's <5 years 10% 5-10 yrs 13% 10+ yrs but the doc is left wide open to use any amount for any of the listed groups (plus more groups exec's program director etc) the above is only what they decided for 2003. They had a mpp that they merged into this cross tested p/s as of 7/1/03. What triggered the questions was a letter to the board from one of the trustees of the retirement plan (whom has quit) saying she felt it was more than the average non profit paid in retirement benefits. The board is worried this is true.

[mbozek]

Who is contributing to the 457f plan, employee or employer? I dont understand why an employee would contribute to a 457f plan if there is still room for salary reduction a 403(b) plan. As far as whether the other benefits are excessive why not hire a consultant to determine what comparable benefits are provided by similar NPs?

[Guest TAR]

The one participant in the 457(f) is the director of the non profit, who is also one of the board of directors he is the highest paid employee of the organization at $140,000 and asking for a $35,000 raise. I could not understand why he was not fully utilizing his 403(b) either but he says the money he puts into the 457(f) is what he would be paying for his heath insurance etc and since he is on his wifes plan he defers what it would cost him into the 457(f). As far as hiring a consultant I guess that is why they have came to us. However, getting info from other non profits on what they are paying in retirement benefits has been a dead end no one wants to offer the info. I was recommending they eliminate the 457(f) and just utilize the 403(b) or even change it to a 401(k) with the profit sharing feature which would give them one plan instead of three separate plans that they are paying fees on.

[E as in ERISA]

A public charity is generally required to provide a copy of its Form 990 upon request -- and that includes information about compensation of directors and the Board -- including retirement and other benefits. If they don't report the information on the Form 990, that compensation can potentially be subject to intermediate sanctions. There have been several articles on Benefits Buzz recently, because the IRS has confirmed that position.

Many are now posting forms on the internet. Or see www.guidestar.org for copies of Forms 990.

[E as in ERISA]

It looks like guidestar.org now charges for some of the info. But it looks like at least some compensation information is available if you sign up for free. (I didn't bother...but you can try).

[Guest TAR]

Thanks I will check it out.

[E as in ERISA]

Also see Section M of the Form 990 instructions regarding how to get copies -- from the IRS or directly from a particular organization.

[mbozek]

Does this employee realize that the amounts he contributes to a 457(f) plan must be subject to a substantial risk of forfeiture and therefore can be cancelled by subsequent board action before he terminates? Employee contributions to a 403(b) plan are 100% vested and are not subject to risk of forfeiture. The employee would be 100% vested if he contributed to a 457(b) plan although the deferrals are subject to the claims of the employer's creditors. The director could contribute a maximum of $26,000 to 403(b) and 457(b) by salary reduction (29,000 if over 50) which would be 100% vested. Who thought up the 457(f) plan? You should rethink adoption of a 401(k) plan because ADP testing will reduce the maximum salary reduction for HCEs to less than 13k but there is no ADP testing in a 403(b) plan. A PS feature can be incorporated in a 403(b) plan which is not subject to the additonal costs of a qual plan such as 5500, IRS approval, etc.