"Grandfathered" Deferred Comp Plan

[Fisher]

If a Governmental organization has a "grandfathered" deferred compensation plan still in effect, if a modifcation to the terms change, would it then become subject to 457 rules? If so, could the assets then become part of a funded 457(b) Governmental Plan where the assets are now held in Trust? Or, if could only become part of an unfunded 457 plan, would it all become taxable since can not set up an unfunded 457(b) plan except for possibly a 457(f) plan?

[Kevin C]

You will need to be more specific about what kind of grandfathered plan it is.

For example, if it is a pre- 5/7/1986 state or local government sponsored 401(k) plan, 1.401(k)-1(e)(4) addresses which plans are treated as being established prior to 5/7/1986.

[Josh62]

I am assuming you mean one of the excluded arrangements as defined in 1.457-2(k) of the regulations. The exclusion under 1.457-2(k)(4)(i) is only for non-governmental Tax exempt. The exemption under 1.457-2(k)(4)(iii) would apply to governmental. Without identifying which section of 457 regulations exempts the deferred compensation plan it is hard to speculate. However, I think it is safe to say it was never a 457(b) and could not now be converted to a 457(b).

SO what you are talking about is that if they have lost their exclusion from coverage under 457 then they would become 457(f). It was not stated whether these arrangements were subject to 409A but unless they met the grandfathering provisions of 409A they should already be dealing with 409A.