This CLE/CPE webinar will provide employee benefits and ERISA counsel and advisers with practical guidance on deferred compensation for nonprofit and exempt organization executives and employees. The panel will discuss critical changes in tax reform affecting the structure of deferred compensation plans and define additional opportunities and challenges for exempt organization directors and professionals.
The regulations under Section 457(f) provide planning opportunities for nonprofit entities in structuring deferred compensation plans for executives while offering some deviation from Section 409A rules on recognition events. The passage of the new tax law significantly impacts compensation structures for key employees of nonprofit organizations and imposes an excise tax equal to 21% on any compensation paid by a tax exempt organization to a covered employee over $1 million for its taxable year or on severance of covered employees if the payments equal to or exceed 3x the key employee’s base compensation (i.e., excess parachute payments).
Compensation subject to new tax law limitations are amounts required to be included in income under the deferred compensation rules of IRC Section 457(f). Such amounts are treated as paid when the rights to the payment are no longer subject to a substantial risk of forfeiture. This can result in the excise tax applying to the value of compensation when it vests even if it is not yet paid.
Employee benefits and ERISA counsel for nonprofit entities must consider planned vesting schedules and timing for cash payouts to come below the $1 million threshold. Counsel must also determine when the rights to payment cease to be subject to a substantial risk of forfeiture for covered employees participating in deferred compensation plans subject to Section 457(f).
The panel will offer tactics for using noncompete covenants, rolling risk of forfeiture, benefit exchanges and deferral of base salary to level out compensation below the $1,000,000 or 3x compensation thresholds for the new excise tax, and explain the implications of Section 409A and Section 457(f), which may require modification of any current compensation plan.
Listen as our experienced panel provides a critical analysis of Section 457(f) regulations, explains the implications of tax reform, and offers guidance on opportunities and limitations in structuring executive compensation plans for exempt organizations.
- 457(f) guidance and Section 409A treatment
- Noncompete covenants
- “Rolling risk of forfeiture”
- Benefit exchanges
- Deferral of base salary
- The 21% excise tax of the new tax law and determining substantial risk of forfeiture
- Evaluating existing plan documents to determine conformity with new tax law and necessary modifications
- Structuring bona fide severance plans
The panel will review these and other key issues:
- Analyzing the new rules that trigger the 21% excise tax on compensation in excess of $1 million or excess parachute payments to covered employees
- Noncompete covenants regarding whether a substantial risk of forfeiture exists
- Planned vesting schedules and timing of cash payouts
- When is deferral of current base salary permitted
- Evaluating whether a plan falls under both 409A and 457(f)
- Opportunities and limitations in structuring compliant executive compensation plans for nonprofit organizations
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