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

A live 90-minute premium CLE/CPE video webinar with interactive Q&A

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Wednesday, October 19, 2022

1:00pm-2:30pm EDT, 10:00am-11:30am PDT

or call 1-800-926-7926

This CLE/CPE course will provide employee benefits, ERISA counsel, and tax advisers with a thorough and practical guide to deferred compensation for nonprofit and exempt organization executives and employees. The panel will discuss critical tax rules impacting 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 21 percent 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 paid or taxed in a subsequent year.

Counsel and tax advisers for nonprofit entities will need to master the ins and outs of IRC Section 457(f) and the regulations to advise their clients on structuring compensation arrangements to maximize tax benefits for the executives and the organization and to minimize the amounts that will exceed the $1 million threshold or be treated as excess parachute payments.

A powerful tool is to defer compensation to a later period when the executive may have lower taxable wages. However, once a covered employee, always a covered employee, so post-termination payments may not even escape penalties.

Counsel and tax advisers must understand when compensation is subject to a substantial risk of forfeiture and when that risk lapses. In drafting these compensation agreements, counsel and advisers must understand the relationship between IRC Sections 457(f) and 409A so executives aren't subject to severe penalties for either a document or operational failure under the plan.

Listen as our experienced panel provides a critical analysis of IRS Section 457(f) regulations and implications of current tax rules, as well as offers 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 is substantial risk of forfeiture and deferred compensation
    1. Noncompete covenants
    2. "Rolling risk of forfeiture"
    3. Separation pay plans
  5. The 21% excise tax on payments over $1 million 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 rules that trigger the 21% excise tax on compensation above $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 the deferral of the 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

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

Smith, Stefan
Stefan P. Smith

Partner
BakerHostetler

Mr. Smith utilizes his in-depth background in employee benefits and executive compensation law to advise public and...  |  Read More

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Cannot Attend October 19?

You may pre-order a recording to listen at your convenience. Recordings are available 48 hours after the webinar. CPE credit is not available on recordings. Strafford will process CLE credit for one person on each recording. All formats include course handouts.

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