457(f) rules

[rlb64]

Is the key difference between deferring compensation in a tax exempt 457(b) and 457(f) substantial risk of forfeiture? In other words, if a tax exempt doesn't care about conditioning benefits on performance of substantial services, can we say there is no reason to offer a 457(b) plan?

Are all ineligible 457 plans subject to 457(f) including frozen deferred compensation plans?

Thank you

[E as in ERISA]

One of the key differences between 457(b)s and 457(f)s is that 457(b)s has a number of rules relating to contributions and distributions that you have to follow. (The rules make them look more like qualified plans). If you don't want to have all those rules in your plan, then you need to follow 457(f) where the only rule is generally that it has to be subject to an SRF. So that is another key difference -- that 457(f)s have SRFs but 457(b)s don't have to.

If you do NOT want to condition benefits on performance of services (an SRF), then you generally WOULD want to go the 457(b) route.

If you don't follow either 457(b) or 457(b) then the compensation is currently taxable.

[Lori Friedman]

There's a new and significant difference -- 457(f) is subject to Sec. 409A, but 457(b) isn't. Sec. 409A is applied in addition to Sec. 457(f); the NQDC arrangement has to satisfy the provisions of both I.R.C. sections.

[davef]

While 409A does technically apply to 457(f) plans, many 457(f) plans will not be affected by 409A to any great extent because they will fall under the "short-term deferral" exception -- distributions will occur within 2-1/2 months after there is no longer a SRF.