457(f) Violation - Does it result in 409A penalty too?

[WestCoast]

A nonprofit enters into a "deferred compensation" arrangement with a key employee. The arrangement document complies with 409A, e.g., proper deferral election and time and form of payment provisions under the 409A -- "the deferred amount will be paid in a lump sum on month/date, 2014, and no earnings will accrue on the deferred amount." But . . . there is no substantial risk of forfeiture, the money is vested up front.

Nonprofit later discovers the error one year after the agreement is signed.

There was immediate taxation to the executive under 457(f) because of the absence of a substantial risk of forfeiture. But . . . is there a 409A penalty if the document otherwise complies with all of the 409A rules? (If the company were a for profit entity, no 409A issue.)

Thanks.

[Guest George Chimento]

<<There was immediate taxation to the executive under 457(f) because of the absence of a substantial risk of forfeiture. But . . . is there a 409A penalty if the document otherwise complies with all of the 409A rules? (If the company were a for profit entity, no 409A issue.) >>

Whether or not payment is made, it's an exempt short term deferral, because the amount is "includible in income under ... section 457(f)." See 1.409A-1(b)(4)(i)(B).

G