New IRC 457(f) Deferred Compensation Rules for Nonprofits: Preparing for Major Changes Ahead

In July 2016, the IRS released long-awaited guidance on deferred compensation for exempt organization employees. The proposed regulations under Section 457(f) provide both clarity and planning opportunities for nonprofit entities in structuring deferred compensation plans for executives, while offering some deviation from Section 409A rules on recognition events.

The proposed regulations update and supercede the prior guidance in key areas related to determining when a substantial risk of forfeiture (SRF) occurs that would require an employee with a deferred compensation plan to recognize income. The new rules decouple 457(f) SRF events from stricter Section 409A provisions, and provide for a “rolling risk of forfeiture,” which allows employees to add or extend the deferral period for SRF purposes.

Additional components of the new regulations include more lenient standards than those found in Section 409A for determining whether a noncompete covenant represents a lapse in SRF requiring income recognition, as well as permitting short-term deferrals in some circumstances. These new rules provide exempt organization employers with a flexibility in structuring deferred compensation plans that is not available for their for-profit counterparts.

Listen as our experienced panel provides a critical first look at the new Section 457(f) regulations and offers practical guidance on implementing the new guidance.

1. Previous 457(f) guidance
2. New guidance deviation from Section 409A treatment
   1. Noncompete covenants
   2. “Rolling risk of forfeiture”
   3. Benefit exchanges
   4. Deferral of base salary
3. Planning opportunities and risks

The panel will discuss these and other important topics:

• How do the new regs interpret participation in a noncompete covenant in terms of whether an SRF exists?
• How do the new regulations differ from Section 409A rules on “rolling risk of forfeiture?”
• What provisions do the new regs make for short-term deferrals on existing plans?
• How do the new regulations allow for deferral of current base salary and under what circumstances?
• What plans are not covered by the new regulations?

Learning Objectives

After completing this course, you will be able to:

• Identify the specific changes the new Section 457(f) regulations make to existing treatment of noncompete covenants involving employees with deferred compensation plans by exempt organizations
• Recognize the “rolling risk of forfeiture” provisions and when they are available in structuring a 457(f)-compliant deferred compensation plan
• Discern the impact of the new 457(f) regulations provision on deferring current base salary
• Establish where the new Section 457(f) regulations conform to—and deviate from—Section 409A guidance

• Field of Study: Accounting
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, performing audits of employee benefit plans, supervising other auditors/accountants, preparing returns and schedules or serving as plan administrator. Specific knowledge and understanding of exempt organization structure and tax reporting requirements; familiarity with deferred compensation structuring, reporting and recognition rules under sections 409A and current 457(f).

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).