Not-for-profit entity has a 457(b) plan, but will be acquiring for profit businesses

[katieinny]

A not-for-profit entity expects to add several for-profit businesses to it's growing list of companies. They currently have a 457(b) plan that includes only a couple of HCEs. They would like to include one or more HCEs from the new for-profit businesses in the 457(b) plan, but that's setting off alarm bells in my head. They also have a 401(k) plan, but I'll post that question under the 401(k) heading. Can HCEs from not-for-profit and for-profit businesses be included in an organization's 457(b) plan?

[TLGeer]

A not-for-profit entity expects to add several for-profit businesses to it's growing list of companies. They currently have a 457(b) plan that includes only a couple of HCEs. They would like to include one or more HCEs from the new for-profit businesses in the 457(b) plan, but that's setting off alarm bells in my head. They also have a 401(k) plan, but I'll post that question under the 401(k) heading. Can HCEs from not-for-profit and for-profit businesses be included in an organization's 457(b) plan?

There is no specific prohibition.

Certainly the for-profit business has to be a division, not a subsidiary. The entire fact pattern would have to be reviewed to look for possible arguments that the service recipient is not another, non-exempt entity.

This is off the top of my head, and not a complete analysis. The bells in you head are a useful warning, because someone should take a detailed look at the situation and evaluate the risks.

Tom Geer

[katieinny]

But if a 457 plan is for government and/or tax-exempt entities, how can an HCE from a for-profit entity be allowed to participate? Is it because the for-profit business is a division of the not-for-profit and that makes it okay? That doesn't change the fact that it is still a for-profit business.

[TLGeer]

But if a 457 plan is for government and/or tax-exempt entities, how can an HCE from a for-profit entity be allowed to participate? Is it because the for-profit business is a division of the not-for-profit and that makes it okay? That doesn't change the fact that it is still a for-profit business.

It's the entity, not the business, that counts. So, it's the difference between division and related entity, yes.

If the plan is not a top-hat plan, there may be issues related to ERISA exemption as a church or governmental [;an as a result of having an unrelated trade or business.

Tom