Single-Employee Tax-Exempt Organization 457 Plan

Can a tax-exempt organization whose executive director is the only employee establish a 457(b) or a 457(f) plan for this individual?

I'm not sure it satisfies the "top-hat" requirements since effectively 100% of the organization's workforce will be participating. 

Among many ambiguities:

Is the worker is a management employee.

Is the worker “highly compensated”?

Might an ostensible income deferral be unreal because the organization and its employee did not truly agree that the deferred compensation is unfunded?

Which person bears which risks?

This is not advice to anyone.

Peter's point is correct. The 100% of workforce is not really the issue that the IRS would focus on. Rather, the issue is whether this individual truly qualifies as "management or highly compensated employee." Keep in mind, however, that a 457(b) plan sponsored by a tax-exempt entity is not required to be a top-hat plan, whereas the 457(f) plan does.

If a plan is ERISA-governed, part 4 of subtitle B of title I of ERISA would require an exclusive-purpose trust unless the plan is “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees[.]” ERISA § 401(a)(1), 29 U.S.C. § 1101(a)(1) https://www.govinfo.gov/content/pkg/USCODE-2024-title29/html/USCODE-2024-title29-chap18-subchapI-subtitleB-part4-sec1101.htm.

But if an ERISA-governed plan does not that ERISA § 401(a)(1) select-group exception and so is funded with an exclusive-purpose trust, the plan would not meet Internal Revenue Code § 457(b)(6)’s tax-treatment condition that a nongovernmental organization’s plan must be unfunded. I.R.C. (26 U.S.C.) § 457(b)(6) https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapE-partII-subpartB-sec457.htm.

If a tax-exempt organization’s plan is neither a governmental plan nor a church plan, a plan get a § 457(b) tax treatment only if the plan is unfunded and fits ERISA § 401(a)(1)’s select-group exception.

@Peter Gulia starts his last post with "if a plan is ERISA-governed".  I would suggest drafting the document so that it is not ERISA governed.  It seems that you could comply with 457(f) without turning it into an ERISA  pension plan.   3(2) pension plan must provide "retirement income" or "results in deferral of income... for periods extending to the termination of covered employment or beyond".  Here put in a 5-year retention bonus, succession planning incentive or CEO transition arrangement.   It's payable on a date specific and not termination of employment or retirement.  We have a NQDC plan that was audited by the DOL just two years ago that is open to all 2000 employees of the client--it is not a pension plan or a top hat plan under ERISA because payments must be made no later than the 10th year after deferral (not til separation or retirement).  (Also 10 years was as long as we felt we could push this,)  I know this goes the opposite direction from your facts but it still covers 100% of the company's employees like your proposed plan.  Our client's isn't a TH plan but it doesn't need to meet the exception because it isn't a pension plan.  Along with that we use terminology like agreement (instead of plan), for retention (not retirement), no funding, unsecured promise, etc.... all self-serving. 

I meant to make clear that 10 years is not a bright line... the key is payment is made independent of severance or retirement.

We recognize one might design a plan that does not provide pension-like deferred compensation or retirement income. Or, a compensation arrangement that is not even a plan.

But is it feasible to do either for what Internal Revenue Code § 457(b) calls an eligible deferred compensation plan? A plan that, except for an unforeseeable emergency, allows no distribution until age 70½ or severance-from-employment?

My explanation above about a § 457(b)(6) tax-law need to fit ERISA § 401(a)(1)’s select-group exception is limited to a nongovernmental (and not church) § 457(b) plan.

Further, I was mindful that an arrangement not designed for a group or class and rather individually negotiated with one particular employee might not be an “employee benefit plan” within ERISA § 3(1)-(3)’s meaning. But I imagined that a tax-exempt organization with only one employee (the OP’s hypo) might lack resources to pursue or defend that idea as a reason ERISA’s title I does not govern the arrangement.

Agreed. My post was intended to apply only to a 457f arrangement