Substantial Risk of Forfeiture If Employer Cannot Terminate Plan

[Guest ElizabethERISA]

Does eliminating the employer's ability to terminate a 457 plan automatically mean that there is not longer a "substantial risk of forfeiture" and all benefits will be taxed presently?

The employer is a non profit organization. The employee is terminating employment and the severance agreement provides for monthly payments during her lifetime pursuant to a 457 plan. The employee wants the plan and the severance agreement to provide that the employer cannot terminate the plan without the prior written consent of the employee. Does this eliminate the "substantial risk of forfeiture"?

I appreciate any thoughts on this, thanks.

[KED]

Before getting to your question, the severance/retirement arrangement you are describing doesn't sound like it has a substantial risk of forfeiture under 457(f). The agreement promises her monthly benefits for life -- she is retiring now when the agreement is being made (so no requirement for future services), so what is the substantial risk of forfeiture that prevents her from being taxed now on this stream of payments?

[QDROphile]

Where is the substantial risk of forfeiture in the first place with respect to the lifetime payments? It would be very difficult to have a risk applicable once the benefits started and still be lifetime benefits.

[jpod]

Elizabeth: Can you re-phrase your post by giving us more facts and without any reference to 457? You mention "severance," which implies that this is an involuntary termination of employment and, therefore, the payments may be exempt from 457 under the "bona fide severance pay" rule, in which case there is no reason to worry about a SRF.