signing a worthwhile plan given that the
deferred comp is taxed when the plan
vests. Such vesting violates the IRS requirement that the plan be subject to a
“substantial risk of forfeiture,” meaning
that distribution of benefits are tied to
a contingency (such as the performance
of “substantial future services” for the
company). By contrast, 457(b) plan participants enjoy tax-deferral status until
benefits are distributed.
“Many non-profit executives find it dif-
ficult to defer vesting until benefits are
paid out,” says Marc Stockwell, a principal
of Findley Davies, Columbus, Ohio. “Nor
would most execs be willing to accept this
restriction. For someone who is 48 years
old and has to wait 17 years before becom-
ing vested at age 65, the requirement can
be hard to stomach.”
To make the plans more palatable,
Stockwell often recommends implement-
ing a “graded” or “class-year” vesting
E continued on page 29
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not all tax-exempt organizations are candidates for 457 plans. marc stockwell, a principal of
findley Davies, Columbus, ohio, says the
smallest non-profits often elect other plan
types because they don’t have the finan-
cial wherewithal to fulfill the obligations
of a deferred comp arrangement. among
the favored alternatives, he says, is the
simPle ira.
an employer-sponsored salary-reduc-
tion arrangement, the simPle plan offers
easier and less costly plan administration
rules than do other employer-provided re-
tirement plans. But contribution limits for
simPle plans also are lower than under
alternatives plans: $11,500 in 2011 for
participants under age 50, as compared
to $16,500 for those enrolled in 457(b)
plans.
organizations desiring an alternative
to the 457(f) plan to provide a supplemen-
tal retirement benefit for the most senior
executives might also use an irC sec-
tion 162 bonus arrangement. The plan,
an employer-funded life insurance policy
owned by the executive, is not covered
by irC section 409a provisions govern-
ing the timing and distribution of deferred
compensation, and therefore is easier to
administer.
richard landsberg, a director of ad-
vanced sales at nationwide financial, Co-
lumbus, ohio, says that many non-profits
make the bonus arrangement doubly
attractive to plan participants by grossing
up the employer contributions to cover
income tax the executive pays when ben-
efits are distributed at retirement.
“Because of irs restrictions, 457(f)
plans can be a hard sell,” says lands-
berg. “as a result, we now see a lot of
non-profits using double bonus plans to
compensate their top executives.”
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