Schedule of Benefits in 457 Plan

[Guest EagleEyes]

Here's the background - I have a state governmental tax-exempt client that wants to adopt a generous qualified DB plan effective 1/1/2005 granting many years of past service. Problem is that for those HCE's near retirement, their benefits are severely limited by 415 (due to the years of participation in a plan). In addition, the effects of the 415 limits decrease significantly as they stay in the plan. So we need to create a nonqualified arrangement that replaces the benefits lost by the 415 limits.

Can we create a 457(f) plan with a schedule of benefits that is dependent on year? For example, if participant separates service in 2008, their stream of payments is “xyz”. If the participant waits until 2009 to terminate, the stream of payments is now “rst”, and so on. Essentially, we are trying to fit a true excess nonqualified arrangement into the 457(f) provisions without the picking a definite retirement date and amount.

Any thoughts? Thanks

[Ron Snyder]

1. I question your assertion that the benefits are severely restricted under IRC 415. Do your calculations reflect the special DB limits available under IRC 415(b)(10) for "state and local government plans"? Or the special limit under IRC 415(b)(2)(g) for "qualified police or firefighters"? Or 415(b)(11) for "governmental or multiemployer plans"?

2. Have you read IRC 415(m) about "qualified governmental excess benefit arrangements"? (This is referred to in IRC 457(f) as an exception to the requirement for inclusion in immediate income. This would seem to be the logical way to go.

[Guest EagleEyes]

I mispoke above - take away governmental. They are state regulated and tax-exempt. Will my schedule still work, or is there another alternative?