The regulations under Section 457(f) provide planning opportunities for nonprofit entities in structuring deferred compensation and benefits for executives. This has become particularly important with the recent passage of tax reform legislation that adds a 21% tax penalty on most tax-exempt organizations that pay their “covered employees” compensation that either exceeds $1 million for the taxable year or is treated as an “excess parachute payment.” Compensation that is no longer subject to a substantial risk of forfeiture (i.e., “vested”) as defined under IRC Section 457(f) will be included for calculating these amounts in the year the compensation vests, even if it is paid, or taxed, in a subsequent year.
Employee benefits and ERISA counsel for nonprofit entities will need to master the ins and outs of IRC Section 457 and the proposed 457 regulations in order to advise their clients on how to structure compensation arrangements to not only maximize tax benefits for the executives and the organization, but also to minimize the amounts that will exceed the $1 million threshold or be treated as excess parachute payments.
In this practical webinar, you will learn from a critical analysis of IRS Section 457(f) regulations, identify implications of tax reform, and receive guidance on opportunities and limitations in structuring executive compensation plans for tax-exempt organizations.
Upon course completion, you will be able to:
- Define IRC Section 457
- Outline exceptions to Application of 457(f)
- Recognize the interaction between 457(f) and 409A guidance
- Identify substantial risks of forfeiture and deferred compensation, including:
- Noncompete covenants
- “Rolling risk of forfeiture”
- Separation Pay Plans
- Evaluate practical applications of 457(f) regulations
- Identify other tax reform provisions affecting employ benefits at tax exempt organizations
- Describe the 21 percent excise tax on payments over $1,000,000 or excess parachute payment, including:
- Who is a covered employee?
- What is an excess parachute payment?
- Who is an applicable tax-exempt organization?
- Plan vesting schedules and timing of cash payouts
- Determine when deferral of current base salary is permitted
- Evaluate whether a plan falls under both 409A and 457(f)
Program Level: Intermediate
Field of Study: Taxes – Technical