Alternatives to 457(f)

[Guest curious jorge]

A nonprofit org. has a 457(f) plan that is linked to 401(a) plan, which provides benefits lost under qualified plan due to compensation limits. For 409A reasons (plan previously used rolling vesting and not sure how to reconcile), the org. is thinking of terminating 457(f) before 12/31/05 deadline w/o paying benefits. What types of alternatives are people recommending to replace this type of benefit, or is 409A seen as prohibitive in t/e executive comp. area?

[mbozek]

457 does not apply to plans established for the transfer of property under IRC 83 or a non qualified trust under IRC 402b but the employee will be taxed when there is no substantial risk of forfeiture on the assets in the plan. Both types of plans are subject to 409A.

[Guest curious jorge]

Sorry, I'm not sure I follow -- are an 83 and 402b plan suggestions?

[mbozek]

Yes. See IRC 457(f)(2).

[Guest curious jorge]

I'm assuming you're suggesting a mutual fund option-type arrangement for the 83 plan -- aren't there fairly complex securities issues (i.e., as to whether a security is being issued by the t/e org.), not to mention the recent 457 regs (indicating, I think, taxation at the time of grant) that call into question an 83's usefulness? I'm not too familiar w/ 402b, but from what little I know, to the extent a trust is funded, there's inclusion, right?

[Alf]

You just have to comply with 457(f) and 409A. Otherwise, you can form a "union" and go 419A . . .