457(f) Question

[Guest zora]

A for-profit entity has a NQDC plan that is a defined contribution plan under which all contributions are at all times 100% vested. The plan is funded in a rabbi trust. The for-profit entity is merging into a non-profit, tax-exempt entity (through a sale of assets).

Can the tax-exempt entity assume the plan's assets and liabilities without immediate taxation under 457(f)? The for-profit entity is effectively forfeiting the deductions.

[Guest zora]

Also, what if the plan requires a termination on the sale of assets unless the buyer adopts it?

[Locust]

The easiest approach would be to terminate the NQDC in 2005 and pay it all out in 2005 before the sale of assets. If you don't do this in 2005, I suppose you might be able to terminate in 2006 under some change of control rule, but it would be more straightforward to do it in 2005 under the 409A transitional rule [that allows termination of NQDC in 2005 without penalty].

[Guest zora]

Yeah, that's one way. The client doesn't like it. But I've think I've figured out another way. Thanks.

[Guest ERISA Litigator]

Is the plan grandfathered? Are the seller and the buyer in the same controlled group? If no and yes, respectively, and if you terminate it, then you can't start another account balance plan for five years.