AALU WRMarketplace 14-30

Deferred Compensation for Tax-Exempt Organizations (Part II) – Non-Qualified Arrangements

Internal Revenue Code (“Code”) §457 imposes special rules for non-qualified arrangements maintained by tax-exempt employers. As a result, the employee of a tax-exempt employer may be able to defer less compensation than an employee of a taxable employer for the same period or may be taxed on previously deferred amounts at a time earlier than that applicable under a taxable employer’s plan. For example, “eligible” deferred compensation plans under Code §457(b) are subject to limits on the amount that may be deferred during any year. “Ineligible” plans under Code §457(f) do not impose such a limit, but require taxation on the deferred amounts when the participant’s rights to those amounts cease to be subject to a substantial risk of forfeiture.

Learn more about the special rules imposed by Internal Revenue Code §457 for non-qualified arrangements maintained by tax-exempt employers in the new Washington Report.