Mastering IRC 457(f): Guidance for ERISA Counsel in Structuring Deferred Compensation Plans for Nonprofit Entities

Recording of a 90-minute CLE/CPE webinar with Q&A


Conducted on Tuesday, April 10, 2018

Recorded event now available

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Program Materials

This CLE/CPE webinar will provide employee benefits and ERISA counsel with a thorough and practical guide to deferred compensation for nonprofit and exempt organization executives and employees. The panel will discuss critical changes in tax reform affecting the structuring of deferred compensation plans and define additional opportunities and challenges for exempt organization directors and professionals.

Description

The regulations under Section 457(f) provide planning opportunities for nonprofit entities in structuring deferred compensation plans for executives. This has become particularly important with the recent passage of new 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(f) 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 to minimize the amounts that will exceed the $1 million threshold or be treated as excess parachute payments. One of the major tools counsel will have is deferring compensation to a later period when the executive may have less taxable wages. However, once a covered employee, always a covered employee, so post-termination payments may not even escape the new penalties.

Counsel will want to understand when compensation is subject to a substantial risk of forfeiture and when that risk lapses. The proposed regulations provide some available tools to deal with when the risk of forfeiture will lapse, such as during a post-termination noncompete period, a provision adding a “rolling risk of forfeiture.” The proposed regulations also created certain compensation arrangements that are exempt from the requirements of IRC Section 457(f), such a separation pay plans or short-term deferrals. In drafting these agreements, counsel will also need to understand the relationship between IRC Sections 457(f) and 409A so executives do not end up paying severe penalties for a either a document or operational failure under the plan.

Listen as our experienced panel provides a critical analysis of IRS Section 457(f) regulations, implications of tax reform, and offer guidance on opportunities and limitations in structuring executive compensation plans for exempt organizations.

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Outline

  1. Introduction to IRC Section 457
  2. Exceptions to Application of 457(f)
  3. Interaction between 457(f) and 409A guidance
  4. What are a substantial risk of forfeiture and deferred compensation
    1. Noncompete covenants
    2. “Rolling risk of forfeiture”
    3. Separation Pay Plans
  5. The 21 percent excise tax on payments over $1,000,000 or excess parachute payments
    1. Who is a covered employee
    2. What is an excess parachute payment
  6. Evaluating practical applications of 457(f) regulations

Benefits

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

Faculty

Fosse, J. Marc
J. Marc Fosse

Director
Trucker Huss

Mr. Fosse focuses on all the tax, securities, corporate and accounting issues related to executive and equity...  |  Read More

Kroh, Jeffrey
Jeffrey W. Kroh

Principal
Groom Law Group

Mr. Kroh works with the firm's Executive Compensation and Plan Design and Taxation practice groups. His practice...  |  Read More

Oringer, Andrew
Andrew L. Oringer

Partner
Dechert

Mr. Oringer is co-chair of his firm's ERISA and Executive Compensation group, and leads the firm’s...  |  Read More

Other Formats
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Strafford will process CLE credit for one person on each recording. All formats include program handouts. To find out which recorded format will provide the best CLE option, select your state:

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$297

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CPE Not Available

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