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News Items, by Subject

457 plans

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Not All 457(b) Plans Are the Same
"The differences between a tax-exempt 457(b) plan and a governmental 457(b) plan include: [1] Eligible employees ... [2] Automatic enrollment ... [3] Roth contributions ... [4] Catch-up contributions ... [5] Correction of excess deferrals ... [6] Loans ... [7] Contributions to a trust ... [8] Rollovers ... [9] Taxation ... [10] Statutory period for correction of plan failures ... [11] Correction programs." (Findley)
Rewarding and Retaining Nonprofit Executives Through Incentive Plans: Practical and Legal Considerations
"[This article highlights] current trends as well as practical and legal considerations regarding the use of incentive plans ... [discusses] the prevalence and function of incentive plans, considerations for establishing and managing plans, applicable legal standards to keep in mind when establishing such plans, and key considerations regarding 457(f) plans (common vehicles for longer-term incentive awards).... [and addresses] two related topics that nonprofits often ask about: whether it is appropriate to incorporate financial metrics into incentive plans, and how the recent 2017 tax act's 21 percent excise tax on nonprofit compensation may affect incentive awards." (Bloomberg BNA)
The Proposed Hardship Distribution Regs: Some Misconceptions
"Plan sponsors are NOT required to eliminate the provision that borrowing be exhausted in order to take a hardship distribution ... Plan sponsors MUST eliminate the requirement to suspend elective deferrals for six months following a hardship distribution ... These regulations have no effect on 457(b) plans." (Cammack Retirement Group)
How to Contribute to Multiple 401(k)s
"If you are one of the over 7 million who have more than one job, you could have the opportunity to make salary deferral contributions to more than one 401(k) plan. When doing so, you must take care not to exceed the statutory limit of $18,500 for 2018/ $19,000 for 2019, plus any catch-up contributions for which you are eligible. This is a 'per person' limit.... If you participate in a governmental 457(b) plan, you may defer up to 100% of your compensation, up to $18,500 for 2018/ $19,000 for 2019, plus catch-up contributions of $6,000 if you are eligible. This is in addition to (separate from) any salary deferral contributions that you make to a 401(k) plan." (Denise Appleby, via Forbes)
[Guidance Overview] Nonqualified Deferred Compensation Rules for Tax-Indifferent Entities Under Section 457A
"This practice note explains the application of Internal Revenue Code Section 457A, which restricts the ability of certain tax-indifferent entities (so-called nonqualified entities) to defer compensation for services provided by their service providers. It provides guidance on practical steps for attorneys advising such entities on nonqualified deferred compensation plans." (Venable LLP)
Time for a Checkup for Your 457 Plan?
"[T]he fee structure and arrangement for most of these plans is based on the value of plan assets at the time the relationship is established. As, and when, plan assets grow through contributions and investment gains, the fees paid by participant accounts increase and grow as an absolute dollar amount, even though the cost of actually recordkeeping the plan has not. Since it generally costs no more for your bank to keep track of $50,000 than $5,000, why pay an 'accounting' fee that is based on the value of the account?" (Best Best & Krieger LLP)
IRS Allows Rollover Despite Deceased Spouse's Failure to Designate a Beneficiary
"The decedent was a participant in an eligible 457 retirement plan[,] ... died before reaching the age of distribution [and] did not designate a beneficiary under the retirement plan, making the decedent's estate the beneficiary of the account.... The IRS concluded [in PLR 201821008] that the taxpayer can be treated as having received the distribution from the plan which was eligible to be rolled over into a personal IRA account." (Butterfield Schechter LLP)
Administrative Fee-Leveling to Impact Penn State Retirement Program Participants
"Beginning July 1, Penn State will adopt a 'fee-leveling' approach, an industry best practice, to create a more fair and equitable way to account for administrative expenses. Fee-leveling ensures that all participants pay the same percentage of their account balances for record-keeping and administrative fees, regardless of the funds in which they invest.... In 2018, the annual administrative fee is 0.052 percent, or $0.52 per $1,000 invested." (Penn State)
457(b) vs. 401(k): Key Differences
"Eligibility for a 457(b) nongovernmental plan differs from that of a governmental plan.... Much lower combined contribution limits for the 457(b) ... 401(k) employee contribution limits are higher for employees 50 and older.... No rollover for nongovernmental 457(b) plans ... No penalty for withdrawals prior to 59-1/2.... The criteria for hardship withdrawals under either type of 457(b) are far more restrictive ... 457(b) nongovernmental assets are exposed to insolvency risk ... 457(b) distribution rules can be particularly confusing[.]" (ForUsAll)
[Guidance Overview] Text of IRS Publication 4530: Designated Roth Accounts Under 401(k), 403(b) or Governmental 457(b) Plans (PDF)
Rev. Dec. 2017. "An advantage of a designated Roth account is that you pay tax on your contributions now, but later, when you receive a qualified distribution from the account, it is tax-free. Less tax on your plan distributions could mean more money in your pocket during your retirement." (Internal Revenue Service [IRS])
Sometimes It's Good to 'Be a Little Bit Country' -- The Benefits of Rural Cooperative Status
"One of the lesser-known (and used) provisions of the Code allows a state or local government or instrumentality that is a 'rural cooperative' to set up and maintain a governmental 401(k) plan in addition to a 457(b) plan. Some of the more common types of rural cooperatives are: Governmental entities providing electrical services on a mutual, cooperative or public utility basis; Municipal irrigation, water conservation or drainage districts; and Mutual irrigation or ditch companies that are governmental." (Best Best & Krieger LLP)
Tax Reform: Comparison of House and Senate Tax Cuts and Jobs Act Versions (PDF)
7-page chart provides side-by-side comparison summary of current law and the provisions of each bill that pertain to retirement and individual savings arrangements. (Ascensus)
Tax Reform Legislation's Potential Impact on Public Sector Retirement Plans
"Aggregation of 457(b) elective deferrals with 401(k) and 403(b) deferrals.... Inclusion of 457(b) contributions in defined contribution plan 415(c) limits.... Elimination of special 457(b) catch-up contributions.... Lower age for access to section 457(b) plan in-service distributions.... Hardship distributions: expansion of available assets.... Hardship distributions: elimination of loan requirement.... Hardship distributions: elimination of six-month waiting period to re-start contributions.... Extension of time for terminated employees to repay offset loans." (ICMA-RC)
Senate Finance Committee Speaks: Proposed Executive Compensation Changes
"[F]or 2018, an executive who is eligible for a governmental employer's 457(b) and 403(b) plans could contribute a maximum of $18,500 to both such plans ... instead of contributing $18,500 ... to the governmental 457(b) plan and $18,500 ... to the 403(b) plan. This proposed change would not apply to non-governmental 457(b) plans.... The tax-exempt employer executive compensation excise tax provisions are substantially similar in the Senate Finance Committee Bill and the House Bill. However, the Senate Finance Committee Bill clarifies that 'compensation' includes amounts required to be included in gross income under Section 457(f) of the Code." (Drinker Biddle)
Tax Reform and Accumulated Leave ('Special Pay') Plans
"The proposed Senate tax reform bill ... eliminates the ability of 403(b) plans to accept contributions for former employees for up to five years following termination of employment.... The result will be greater employment taxation on the employer and former employee, and more immediate income taxation on the employee." (Carlton Fields)
401(k) and 403(b) Contributions Still on the Chopping Block
"Here's what is now under consideration: [1] The maximum catch up contribution would be increased to $9000, but catch up contributions would have to be made on a ROTH basis.... [2] No catch up contributions would be permitted for employees earning more than $500,000. [3] Catch up contributions for pre-retirees and long service employees under 403(b) and 457 plans would be eliminated. [4] Special post-termination employer contributions for 403(b) plan participants would be eliminated. [5] The rules permitting contributions to a 457(b) plan in addition to maximum 401(k) and 403(b) contributions would be eliminated." (Cohen & Buckmann, P.C.)
[Official Guidance] Text of IRS PLR 201743002: Section 457 Plan May Include Auto-Enrollment (PDF)
"Maintaining an [eligible automatic contribution arrangement (EACA)] (within the meaning of section 414(w)(3)) through the Plan, under which the participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation provided under the Plan until the participant specifically elects not to have contributions made (or specifically elects to have contributions made at a different percentage), does not cause the Plan to fail to satisfy section 457(b)(4) and section 1.457-4(b)." (Internal Revenue Service [IRS])
[Official Guidance] Text of IRS Announcement 2017-15: Relief for Victims of Hurricane Maria and the California Wildfires (PDF)
"This announcement provides relief to taxpayers who have been adversely affected by Hurricane Maria and recent wildfires in California ('California Wildfires') and who have retirement assets in qualified employer plans that they would like to use to alleviate hardships caused by these disasters. In addition, this announcement provides relief from certain verification procedures that may be required under retirement plans with respect to loans and hardship distributions. The relief provided under this announcement is in addition to the relief already provided by the Service pursuant to News Releases CA-2017-06, VI-2017-02 and PR-2017-02 ... The relief in this announcement is separate and in addition to the relief provided to victims of Hurricane Maria by the Disaster Tax Relief and Airport and Airway Extension Act of 2017 ...

"As described [in this announcement], a qualified employer plan will not be treated as failing to satisfy any requirement under the Code or regulations merely because the plan makes a loan, or a hardship distribution for a need arising from Hurricane Maria or the California Wildfires, to an employee or former employee whose principal residence on September 16, 2017, in the case of the U.S. Virgin Islands; September 17, 2017, in the case of Puerto Rico; or October 8, 2017, in the case of California was located in one of the areas identified for individual assistance by [FEMA] because of the devastation caused by these disasters or whose place of employment was located in one of these areas on that date or whose lineal ascendant or descendant, dependent, or spouse had a principal residence or place of employment in one of these areas on that date....

"[A] profit-sharing or stock bonus plan that currently does not provide for hardship or other in-service distributions may nevertheless make hardship distributions related to these disasters pursuant to this announcement, except from QNEC or QMAC accounts or from earnings on elective contributions (see below for plan amendment requirements)....

"[T]he relief provided by this announcement applies to any hardship of the employee, not just the types enumerated in the regulations, and no post-distribution contribution restrictions are required." (Internal Revenue Service [IRS])

Are 457(b) Plan Assets at Risk During an Acquisition?
"If the acquirer is a governmental entity, the 457(b) plan in question will become taxable when no longer subject to a substantial risk of forfeiture under 457(f).... However, if the acquirer is another private tax-exempt institution, there can be some credit risk that arises with the acquisition of the firm by such an entity if the acquirer does not resume responsibility for the assets and liabilities of the 457(b) in an asset acquisition and the entity being acquired does not retain sufficient assets to pay the benefits, since the plan itself is unfunded." (PLANSPONSOR)
[Guidance Overview] Comparison of Retirement Programs Available to Church and Church-Related Employers (PDF)
13 pages. "This chart compares retirement programs that are 'tax-qualified' under the Internal Revenue Code. In addition to these options, a non-qualified church controlled employer (non-QCCO) can establish a Code Section 457(f) ineligible deferred compensation plan. A church or qualified church controlled organization (QCCO) cannot establish a 457(f) plan, but can establish a non-qualified deferred compensation plan under Code Sections 451 and 83. This chart covers the general rules that apply to each of these types of retirement programs to provide context. However, the rules that apply only to church and church-related employers are bolded in red." (Ice Miller LLP)
[Discussion] Different Distribution Options for Differently Invested Money?
"We have a 457(b) Plan (tax-exempt, not governmental) in which the plan sponsor wants a terminating participant's fixed-rate fund account to be distributable in certain ways but the mutual fund account to be distributable in several additional ways. Is this OK?" (BenefitsLink Message Boards)
[Discussion] How to Move Money from Employer's Old 457(b) Plan to Employer's New 457(b) Plan?
"We have an employer who wants to freeze their current 457(b) plan and start a new 457(b) plan. The employer also wants to allow participants to roll their account balances from the current 457(b) plan into the new one. The employer is tax exempt (not governmental) and the plan-to-plan transfer rules in 1.457-10(5) require that 'the participant has had a severance from employment with the transferring employer and is performing services for the entity maintaining the receiving plan.' This would seem to ruin our client's plans. Any other way?" (BenefitsLink Message Boards)
Is a 457 Plan Right For You?
"Like a 401(k), a 457 plan allows participants to defer compensation by making contributions to their retirement plan; however, a 457 plan may allow for more flexibility. For instance, early withdrawals from a 401(k) are subject to a 10% penalty but with 457 plans, there is no early withdrawal penalty, although withdrawals are subject to ordinary income tax. A 457 plan may also be available to certain independent contractors who work with governmental agencies and eligible non-profits, while 401(k) and 403(b) accounts are not likewise available to independent contractors." (Butterfield Schechter LLP)
Beyond the 403(b): Things to Know About Deferred Comp for Executives of Non-Profit Organizations
"[1] First, there are two types of 457 plans: 457(b) plans and 457(f) plans.... [2] You (usually) can't roll to an IRA.... [3] The assets belong to the organization.... [4] The normal 'reasonable compensation' rules still apply.... [5] DOL notification is required." (E is for ERISA)
Differences of Opinion Between Section 457 Plan Sponsors and Section 401(k)/403(b) Plan Sponsors
"457 employers express a strong sense of paternalism ... 457 plan sponsors embrace automatic investments ... 457 plan sponsors are confident in the education they provide ... Use of an advisor is higher among 457 sponsors." (American Century Investments)
[Guidance Overview] Proposed 457(f) Regs: Opportunities and Challenges (PDF)
37 presentation slides. "2016 regulations significantly expanded 457(f) plan sponsors' ability to do the following without immediate taxation to participants: permit elective deferrals, use noncompetition agreements, make larger severance payments than otherwise permitted under 409A. [This presentation] addresses those issues [as well as] rules and limitations of the short-term deferral exception, the interaction of the 2016 regulations with existing regulations under Section 409A of the Internal Revenue Code, other types of arrangements potentially affected by the 2016 regulations (e.g., vacation pay, flexible allowance plans); [and] best practices." (McDermott Will & Emery)
Why Hire a '3(38)' Adviser for a Public Agency 457(b) or 401(a) Plan?
"In California, many public agencies' retirement plan committees are unaware that unless they fulfill certain ERISA-like requirements with respect to their participant-directed 457(b) and 401(a) plans, they can be held personally liable for investment losses suffered by plan participants.... [W]hat can they do to protect themselves? More importantly, what can they do to improve the overall investment process within their plan?" (Chang Ruthenberg & Long PC)
An Overview of Section 457 plans
"What is a 457 plan? ... Who can establish a 457 plan? ... What types of 457 plans are available? ... Are there contribution limits for 457 plans? ... Can an employee contribute to a 457 plan and a 401(k) or 403(b) plan? ... What are some of the advantages of participating in a 457plan? ... What are the differences between a non-governmental 457 plan and governmental 457 plan?" (Butterfield Schechter LLP)
A Primer for Plan Sponsors: 457(b) and 457(f) Plans
"[1] What is a 457(b) plan? ... [2] What are the contribution limits for 457(b) plans? ... [3] What are the distribution rules for 457(b) plans? ... [4] What is a 457(f) plan? ... [5] What are the contribution limits for 457(f) plans? ... [6] What are the distribution rules for 457(f) plans? ... [7] Which employers can offer non-governmental 457(b) and 457(f) plans? ... [8] Why would an employer use a 457(b) or 457(f) plan?" (Strategic Benefit Services)
[Guidance Overview] 2017 Compliance Checklist for Qualified Plans Not Subject to ERISA (PDF)
20 pages. "The Compliance Checklist incorporates requirements for governmental and nonelecting church plans, non-ERISA 403(b) plans, 457 plans and nonqualified executive benefit plans, and provides information on the materials that you will need to file, filing due dates and agencies to which the filings should be made." (Prudential)
GASB Statement 84 Provides 'Fiduciary Activity' Guidance for Governmental Entities
"[F]iduciary activity occurs when the governmental entity controls plan assets and has a fiduciary relationship with plan beneficiaries.... According to [GASB Statement 84], a government controls the assets of an activity if it holds the assets or 'has the ability to direct the use, exchange or employment of the assets in a manner that provides benefits to the specified or intended recipients.' ... The statement also includes separate criteria to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities." (Bloomberg BNA)
[Guidance Overview] Attention, California School Districts: You Are Fiduciaries for Your 457(b) Plans
"Since 457(b) plans are deferred compensation plans for state and local governments, 457(b) plans satisfy the definition of public pension and retirement funds for purposes of the California Constitution. This means that the retirement boards, and their members, who are responsible for 457(b) plans ... are fiduciaries subject to the duties and obligations under Article XVI, Section 17." (The Teacher's Advocate)
[Guidance Overview] SEC Extends Rule 482 Relief to Non-ERISA Retirement Plans
"While Rule 482 under the Securities Act permits information about investment companies to be provided to investors without being accompanied or preceded by those companies' full prospectuses, DOL-required disclosures did not comply with all the conditions for reliance on Rule 482. Nevertheless, the SEC staff issued a no-action letter in late 2011 under which it agreed, for ERISA plans, to treat the DOL-required disclosures as if they satisfied the conditions of Rule 482. The SEC staff's February 18 letter extends that position to cover provision of the same disclosures required by the DOL rule to participants and beneficiaries in plans that are not subject to ERISA, thus permitting reliance on Rule 482 for such disclosures." (Carlton Fields)
[Guidance Overview] Pension Plan Limitations and Other Applicable Limitations for 2017
"Many of the pension plan limitations were increased, as the increase in the cost-of-living index met the statutory limits that initiate their adjustment. However, some limitations remain unchanged. [This article provides] a summary of some of the limitations." (Trucker Huss)
Proposed Deferred Compensation Plan Rules May Aid Tax-Exempt Hospitals
"Under the proposed regulations, an executive can agree to defer a portion of his or her compensation to a later year in return for an agreement to provide two years of substantial services or an agreement not to compete with the nonprofit for two years. Additionally, the proposed regulations require the compensation paid out to equal more than 125 percent of the amount that the executive agreed to defer." (Bloomberg BNA)
[Official Guidance] Text of IRS Announcement 2016-39: Retirement Plan Distribution Relief for Victims of Hurricane Matthew (PDF)
"[A] qualified employer plan will not be treated as failing to satisfy any requirement under the Code or regulations merely because the plan makes a loan, or a hardship distribution for a need arising from Hurricane Matthew, to an employee or former employee whose principal residence on October 4, 2016, (October 3, 2016, for Florida) was located in one of the counties identified for individual assistance by [FEMA] because of the devastation caused by Hurricane Matthew or whose place of employment was located in one of these counties on that applicable date or whose lineal ascendant or descendant, dependent, or spouse had a principal residence or place of employment in one of these counties on that date. These counties identified for individual assistance by FEMA are in Florida, Georgia, North Carolina and South Carolina and can be found on FEMA's website ...

"Plan administrators may rely upon representations from the employee or former employee as to the need for and amount of a hardship distribution, unless the plan administrator has actual knowledge to the contrary, and the distribution is treated as a hardship distribution for all purposes under the Code and regulations ...

"[A] 'qualified employer plan' means a plan or contract meeting the requirements of Section 401(a), 403(a) or 403(b), and ... a plan described in Section 457(b) maintained by an eligible employer described in Section 457(e)(1)(A), and any hardship arising from Hurricane Matthew is treated as an 'unforeseeable emergency' for purposes of distributions from such plans....

"To make a loan or hardship distribution pursuant to the relief provided in this announcement, a qualified employer plan that does not provide for them must be amended to provide for loans or hardship distributions no later than the end of the first plan year beginning after December 31, 2016. To qualify for the relief under this announcement, a hardship distribution must be made on account of a hardship resulting from Hurricane Matthew and be made on or after October 4, 2016, (October 3, 2016, for Florida) and no later than March 15, 2017." (Internal Revenue Service [IRS])

[Guidance Overview] IRS Information Release 2016-138: Retirement Plans Can Make Loans, Hardship Distributions to Victims of Hurricane Matthew (PDF)
"Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.... Currently, parts of North Carolina, South Carolina, Georgia and Florida qualify for individual assistance." (Internal Revenue Service [IRS])
[Guidance Overview] The Proposed 457(f) and 409A Regulations: A Closer Look
"When IRC section 409A and its related regulations came into being, it was thought that this might be the beginning of the end for the use of so-called 'rolling risks' for forfeiture in 457(f) plans.... The proposed 457(f) regulations make it clear that rolling risks of forfeiture continue to be permitted, but that substantial future services must generally be performed for at least two years (among other restrictions), and that the present value of the deferred compensation must be at least 125% of the compensation that the employee would have received had the agreement not been extended." (Cammack Retirement Group)
How to Prepare for an IRS Audit of Your 403(b) or 457(b) Plan (PDF)
13 pages. Includes: [1] How employers can prepare for an IRS Audit of their 403(b) and/ or 457(b) Plan, [2] potential areas of focus during an IRS examination, and [3] best practices for strengthening tax compliance. (National Association of Government Defined Contribution Administrators [NAGDCA])
[Guidance Overview] IRS Issues Proposed Regs for Executive Deferred Comp Plans of Tax-Exempt Organizations
"The proposed regulations provide important guidance and clarification in areas that have been unclear for practitioners and the organizations maintaining plans for executives. The regulations address substantial risk of forfeiture and severance as well as providing clarification regarding short-term deferrals and the interaction between sections 457(f) and section 409A." (EisnerAmper)
[Guidance Overview] IRS Says Employees of Disregarded Single-Member LLC May Participate in Parent's 403(b) and 457(b) Plans
"[GCM 201634021] provides that employees of a single-member LLC treated as a disregarded entity must be allowed to participate in a section 403(b) plan sponsored by its parent 501(c)(3) tax-exempt organization. The LLC may also be allowed to participate in a 457(b) plan sponsored by such a parent." (Seyfarth Shaw LLP)
[Official Guidance] Text of IRS Ann. 2016-30: Relief for Victims of Louisiana Storms (PDF)
"This announcement provides relief to taxpayers who have been adversely affected by the recent storms and flooding in Louisiana that began August 11, 2016, (Louisiana Storms) and who have retirement assets in qualified employer plans that they would like to use to alleviate hardships caused by the Louisiana Storms. In addition, this announcement provides relief from certain verification procedures that may be required under retirement plans with respect to loans and hardship distributions.... The parishes included in the covered disaster area for the Louisiana Storms are identified in the News Release issued by the IRS for victims of the storms and flooding in Louisiana ... Plan administrators may rely upon representations from the employee or former employee as to the need for and amount of a hardship distribution, unless the plan administrator has actual knowledge to the contrary, and the distribution is treated as a hardship distribution for all purposes under the Code and regulations." (Internal Revenue Service [IRS])
[Guidance Overview] Text of IRS IR-2016-115: Retirement Plans Can Make Loans, Hardship Distributions to Louisiana Flood Victims (PDF)
"Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures." (Internal Revenue Service [IRS])
[Guidance Overview] IRS Clarifies Treatment of Disregarded Single Member LLC Employees in 403(b) and 457(b) Plans of the Tax-Exempt Member of the LLC
"[GCM 201634021] provides the following clarifications: [1] A [single member limited liability company (SMLLC)] that does not elect to be taxed as a corporation is disregarded with respect to its member for purposes of the 403(b) and 457(b) eligible employer requirements. Therefore, if the SMLLC's member is an eligible employer, then the SMLLC is also an eligible employer for both 403(b) and 457(b) plans. [2] Employees of a SMLLC generally must be allowed to participate in a 403(b) plan sponsored by the member in order to avoid violating the 'universal availability' rule applicable to such a plan under Code Section 403(b)(12)(A)(ii). [3] Employees of a SMLLC may be allowed participate in a 457(b) plan sponsored by the member." (Bradley Arant Boult Cummings LLP)
[Guidance Overview] Proposed Regs on Deferred Compensation Plans Under Section 457
"The proposed Section 457 regulations' recognition that a non-compete agreement can create a substantial risk of forfeiture represents a significant departure from the Section 409A regulations, under which a covenant not to compete does not create a substantial risk of forfeiture for purposes of Section 409A." (Cheiron)
[Guidance Overview] Disregarded Entity Employees May Participate in Exempt Entity's Plans
"[GCM 201634021] clarified that employees of a single-member limited liability company (LLC) can participate in the section 403(b) and section 457(b) retirement plans of a single member that is a tax-exempt entity.... The IRS stated that a single-member LLC that has not elected to be taxed as an association is treated as a branch or division of the tax-exempt entity, not a subsidiary or affiliate. Therefore, the reference in the regulation to eligible employers does not apply to single-member LLCs that are disregarded." (RSM US)
[Guidance Overview] Section 457(f) Gets Its Groove Back
"[T]he proposed 457 regulations have resurrected rolling vesting, and also permit a covenant not to compete to create a substantial risk of forfeiture, subject in both instances to some tricky prerequisites. This added design flexibility for 457(f) plans is good news for non-profit organizations, which increasingly must compete for talent with for-profit organizations." (E is for ERISA)
[Guidance Overview] Section 457(f) Carve-Outs Under New Proposed Regs
"[T]he proposed regulations clarify how certain pay arrangements are carved out from Section 457(f) compliance, either because the arrangement is not deemed to provide for a deferral of compensation, or because it defers compensation but not in a manner that falls under Code Section 457(f). Where no deferral of compensation occurs, the pay arrangement is also exempt from the 'Enron rules' applicable to for-profit deferred compensation plans under Code Section 409A, and related regulations." (E is for ERISA)
[Guidance Overview] IRS Guidance on Section 457: What Non-Profit and Governmental Employers Need to Know, Part 1
"Under the proposed rules, compensation is not 'deferred' if the compensation must be paid and actually is paid within 2-1/2 months following the end of the calendar year ... in which the payment is no longer subject to a substantial risk of forfeiture.... For bonus plans, this means that as long as the bonus plan provides that the bonus must be paid by March 15th of the year following the year in which the employee earns the bonus and the bonus is actually paid on or before that March 15th, the plan will not be subject to Section 457(f). While this is good news, this can lead to unusual results if the bonus plan is not carefully designed." (Poyner Spruill LLP)
[Guidance Overview] Action Steps for Eligible Tax-Exempt and Governmental Employers Under the New Proposed Deferred Comp Requirements
"[T]he lack of guidance that existed prior to the issuance of the Proposed Regulations may have resulted in certain assumptions being made when deciding how to structure an agreement, plan, or program subject to the Deferred Compensation Requirements, and it may be appropriate to revise those assumptions in light of the new guidance ... [T]he Proposed Regulations provide new planning opportunities ... that were not clearly available before the issuance of the Proposed Regulations[.]" (Bond, Schoeneck & King)
[Guidance Overview] The Proposed 457(f) and 409A Regs: A Closer Look
"One of the first clarifications provided in the proposed regulations is that the rules under 409A apply 'separately and in addition to the rules under 457.' Thus, both the 409A regulations and the 457 regulations would apply to 457(f) plans when finalized. So the regulatory environment for 457(f) plans remains complex, though important clarifications regarding the interaction between 457(f) and 409A was provided in the proposed 457 regulations." (Cammack Retirement Group)
[Guidance Overview] Proposed Regs Affect Tax-Exempt Employers' Deferred Comp Plans
"The regulations explain and clarify [1] what types of arrangements will not be treated as deferred compensation for purposes of Section 457(f); [2] how to calculate the amount of compensation that is taxed under Section 457(f); [3] key definitions; and [4] special rules that apply to deferrals of current compensation and extensions of risk of forfeiture[.]" (Nixon Peabody LLP)
[Guidance Overview] Newly Proposed Regs Under Section 457(f) Impact Deferred Compensation Arrangements of Tax-Exempt and Governmental Entities
"These requirements for noncompetition agreements may be difficult to satisfy in many cases, particularly in states where noncompetition agreements are largely unenforceable. Even so, the treatment under section 457(f) is more flexible than under section 409A ... The noncompetition provisions in the proposed regulations provide a significant plan design opportunity for employers to coordinate different aspects of sections 457(f) and 409A such that compensation may continue to be deferred after the end of employment." (Steptoe & Johnson LLP)
[Guidance Overview] Newly Issued 457(f) Proposed Regs Clarify Rules for Nonqualified Deferred Comp Provided by Non-Profit and Governmental Entities (PDF)
"Of note is the fact that the Proposed Regulations do not generally provide grandfathered status to current Section 457(f) plans. While there are special rules for delayed applicability of the regulations for collectively bargained plans and plans of governmental entities that would be required to be amended by legislative action, the current provisions regarding the applicability of Section 457(f) regulations would not just apply prospectively but would apply to plans and other arrangements (unless specifically exempt from Section 457(f)) adopted before the date the regulations are finalized". (Trucker Huss)
[Guidance Overview] Cautionary Observations on the Proposed 457 Regulations
"Practitioners in the for-profit arena currently believe they enjoy wide latitude in restructuring severance arrangements that are exempt from 409A. It would not appear that practitioners will have that same latitude for severance arrangements that are exempt from 457 ... The regulations restrict, but do not eliminate this flexibility by establishing requirements that must be satisfied for non-competes and rolling risks of forfeitures to create a substantial risk of forfeiture.... Finally, the proposed 457 regulations raise the possibility that many leave programs, especially those maintained by governmental entities, could be suspect as deferred compensation arrangements." (Benefits Bryan Cave)
[Guidance Overview] Proposed Regs Create (Some) Executive Comp Design Opportunities for Tax-Exempt Employers
"Tax-exempt employers should also consider the design opportunities presented by the new proposed regulations. In particular, in appropriate cases, tax-exempt employers may find it useful to reconsider the application of rolling vesting or noncompete provisions in the case of deferred compensation arrangements for certain key executives where the facts and circumstances requirements support the application of those features." (Verrill Dana LLP)
[Guidance Overview] Highlights of the Proposed Regs Under Section 457(f)
"[T]he new regulations will apply to any pre-existing plans and arrangements that did not have the amounts deferred thereunder previously reported as taxable income. This could cause employees under pre-existing plans or arrangements to be subject to tax as of the effective date of the new regulations." (Squire Patton Boggs)
[Guidance Overview] Long-Awaited 457 Plan Regs Provide Planning Opportunities for Tax-Exempt and Governmental Employers
"[T]he 457 proposed regulations largely follow the concepts embedded in Section 409A and previously issued regulations under Section 409A. However, there are some unexpected differences ... In particular, the proposed regulations are of special interest to tax-exempt employers whose plans utilize non-compete restrictions or 'rolling risks of forfeiture,' or who would like to add those features." (Davis Wright Tremaine LLP)
[Guidance Overview] Proposed 457 Regs: Bona Fide Severance Pay Plan and Substantial Risk of Forfeiture
"The Proposed Regulations do not limit annualized compensation to the amount that may be taken into account under Code section 401(a)(17). Also, the Proposed Regulations do not include exceptions for collectively bargained separation pay plans, foreign separation pay plans, and reimbursements and certain other separation payments." (Caplin & Drysdale)
[Guidance Overview] IRS Proposes Regs for Deferred Compensation Plans of Tax-Exempt and Governmental Employers
10 pages. "The proposed regulations do not 'grandfather' existing arrangements or offer a transition period to conform to the proposed or final regulations. Thus, while new arrangements generally should be designed with an eye to compliance with the proposed rules, decisions about existing arrangements will be more complex." (Ropes & Gray LLP)
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