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Expanding Your Practice Beyond the For-Profit World

Looking to expand your executive benefits planning practice? Consider adding 457 plans to your portfolio

For most life insurance and financial service professionals, non-qualified deferred compensation calls to mind executive benefit plans used in the for-profit world: bonus plans, split-dollar arrangements, salary-continuation and salary-reduction packages used to recruit, reward and retain top management talent.

Often overlooked among advisors who specialize in executive compensation are packages available to execs who work in government and the not-for-profit arena. These plans, governed by Internal Revenue Code Section 457, supplement 403(b) qualified plans set up for tax-exempt organizations’ rank-and-file workers.

Such creditor risk extends as well to those participating in 457(f) plans, which are available to non-profit executives who are looking defer compensation beyond the 457(b) plan contribution limit. The 457(f) plans can be (and generally are) customized to the needs of the individual executive, but sources say that IRS requirements have limited their appeal for tax-exempts.

Among the technical challenges: designing 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.

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Nichole Morford

Nichole Morford
Managing Editor

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