Employer Contributon Only

[Guest John Nelson]

Tax-exempt employer (not a government entity) wants to provide a retirement benefit to executive director who is retiring this year. In general, the employer wants to credit, say, $100K to a book-keeping account for director (account remains an asset of the employer, subject to employer's creditors), and then pay this amount to the director in annual installments over the next 10 years. In essence, this arrangement is nothing more than an unsecured promise by the employer to pay benefits to the employee in the future. Is this type of arrangement subject to Code section 457? Thanks.

[QDROphile]

Does not fit the deferral limits of 457(b) and does not fit the risk of forfeiture required for 457(f). Section 457 is the only opportunity other than qualified plans, section 403, and the IRA family. I am sure you can get an insurance sales agent to try to convince you that some insurance product will do the trick.

[Lori Friedman]

The arrangement has to satisfy the provisions of both I.R.C. Sec. 457(f) and I.R.C. Sec. 409A.

[Guest mjb]

If director is not an HCE then the employer can establish a qual DC plan for director and contribute up to 44k which can be rolled over to an IRA. Employer can establish 457 plan and contribute 15k. If er is 501c3 entity employer can contribute up to 44k to 403b contribution to employee. Total contribution is 103k. 403b and Q plan assets are not subject to employer's creditors.

[GBurns]

Doesn't the salary/compensation matter?

Isn't this Executive Director an HCE ?

You should not be able to do it under 457 in any case and probably not under 403 either.

[Guest mjb]

You care to enlighten us as to why this cant be done under 457(b) and 403(b) assuming the employer is eligible to sponsor a 403(b) plan? Last time I looked there was no aggregation of 457 benefits with benefits under a 403b plan. Reference to citations would be helpful to review your answer.

[GBurns]

For 457 I will just requote QDROphile "Does not fit the deferral limits of 457(b) and does not fit the risk of forfeiture required for 457(f). "

For 403 I will first quote you "assuming the employer is eligible to sponsor a 403(b) plan" which is something we do not yet know, then point out that according to the OP this will not be a salary deferral but an employer contribution being made " to a book-keeping account " and not to either an annuity contract or a custodial account etc and that "this arrangement is nothing more than an unsecured promise by the employer to pay benefits to the employee in the future". I do not think that anyone would need a cite to say that this could not be done for a 403(b) plan.

Are you saying that what was proposed in the OP can be done in either?

[Guest mjb]

GB: the solution to the problem involves thinking outside the box beyond what what was asked since everyone agrees that the max deduction under 457 will be limited to 15k. If the employer is commited to a bookkeeping account or the director is an HCE then the contribution to a 403b or Q plan will not be an option. There is a option to contribute to a 403b plan after the employee terminates.

[Kirk Maldonado]

To overlay another level of concern, the IRS has been focusing upon the levels of compensation paid to the executives of tax-exempt organizations, including, but not limited to, the applicability of the section 4958 taxes on excess benefit transactions.

I'm not saying that this level of compensation is excessive. There aren't enough facts presented to much such a determination. Furthermore, I don't have sufficient expertise. I'm just suggesting that somebody should look at this issue to see whether or not there is reason to be concerned. It may very well be a non-issue, but it is better if you look at it now, than having it raised for the first time by the IRS upon an audit.