Churches and 457

[Guest Patrick Foley]

Churches aren't subject to Code section 457, but that doesn't stop financial institution salespeople from wanting to sign churches up or church human resources people from wanting to get their employees a benefit similar to governmental 457s.

I would think a church could sponsor a broad-based nonqualified deferred compensation program like a governmental 457(b) plan but using a rabbi trust rather than a 501(a) trust as required under 457(g).

No rollover, of course, but it seems there would be enough advantages to make it attractive.

Are any 457 providers offering such a product? Any thoughts?

[Lori Friedman]

Patrick, I think the problem is that most people simply aren't aware that I.R.C. Sec. 457 doesn't apply to church employees. It's a good thing when any professional -- broker, banker, attorney, CPA, etc. -- is even aware of Sec. 457 and its importance. Knowledge about the law's intracacies is even more unusual.

[mbozek]

The purpose of exempting chuches from 457 is not to prevent them from having NQDC but to exempt churches from the limitations imposed on deferrals under IRC 457b, e.g 14k deferrals. Prior to the extension of 457 to NP employers, the IRS allowed NPs to have NQDC on the same terms as profit making ers. See Rev. Rul. 73-126. A church can adopt a program that permits deferrals to the same extent pemitted under 457b or adopt a program that allows vested deferrals of a greater amount w/out being subject to the MRD rules.

[Guest Patrick Foley]

mbozek, the advantage to churches (at least my church clients) of not being subject to 457 is all theoretical -- no practical benefit -- if products aren't available to install rank-and-file NQDC in the church at a reasonable cost. A church would rather offer a 457 than nothing. My question is whether anyone knows of a church rank-and-file NQDC product or, if not, a 457(b) product that a church is not precluded from adopting.

I expect that this will become a more pressing concern due to the burdens the newly proposed 403(b) regulations will impose on churches.

Happy new year!

[mbozek]

What precludes a church from adopting a NQDC plan which meets the requirements of 457(b) e.g., limits deferrals to 14k and requires distribution under the a9 rules and only upon termination, death or retirement without referring to IRC 457? The products would be the same as any 457 plan-all you need is a recordkeeping system to account for allocations. Any vendor should be able to supply the platform for such a program.

[Guest Patrick Foley]

I'm concerned that we'd need church documentation different from either the governmental or nonprofit/ERISA 457s to tie together the investment side and the recordkeeping, both of which could use standard 457 stuff. The church quasi-457 couldn't use the 501(a) trust required for the governmental 457, and the "top hat" restrictions wouldn't be required or appropriate.

As an attorney without a big client who wants me to develop this kind of plan, I can't (or don't have the energy to) really take this notion anywhere. It seems curious that there aren't commission-driven people out there selling it. Maybe churches are too small a market, or, as Lori suggests, maybe the whole thing is too obscure.

Happy new year!!

[mbozek]

Maybe each denomination has created its own documentation for its member churches who wish to participate in the 457 plan similar to 403(b)(9) retirement income trusts witrhout the need to use salesmen.

[ERISAAPPLE]

Is a church subject to 457(f)?