Recharacterization of Employer Contribution as Employee Contribution?!?

[ERISAatty]

With respect to a 457(b) Plan sponsored by a local government entity, an executive-level employee has worked under an employment agreement for several years, under which the employer agrees to contribute 6.5% of employee's wages into a 457(b) Plan. (This is above and beyond other standard benefits, including contributions into state retirement/pension system). (Part of the goal of the arrangement was to make the overall salary appear lower).

For 2010, employee has proposed that the 6.5% be recharacterized as an 'employee' instead of an 'employer' contribution. (Goal is that this makes his 'salary' for the year appear 6.5% higher, making his 'high three years' higher for state pension purposes - he's nearing retirement).

The 457(b) employer contribution amounts have been going into the 457(b) plan on a bi-weekly payroll basis in 2010.

The proposal would leave the 2010 contributions in the plan (no distribution), but a 'correction' would be made so that the employee would include the amounts for 2010 as income, and the government entity would pay applicable employer taxes on the amount. The total amount contributed for 2010 would be unaffected.

I'm stumped on this one.

Doesn't seem right, and yet, because of government and 457(b) status, I'm not finding any specific provision that prohibits it.

Because of his executive status with respect to the government entity, could be a possible prohibited transaction (in addition to any other problems)?

Anyone else out there who works more with government plans (this is not my specialty area), who can weigh in?

A member of the government board, whose permission is required, in order to approve this change for 2010, is objecting. I've been asked (by the executive) to either prove it can (or can't) be done... (Executive's position is that it's his compensation, either way....[so of course, he think's it's no big deal]).