February 24, 2020

February 24, 2020

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IRS to Begin Compliance Checks of Non-governmental Section 457(b) Plans

The Internal Revenue Code of 1986 (the Code), permits governmental and tax-exempt entities to sponsor tax-advantaged retirement plans meeting the Code Section 457(b).  Although governmental Section 457(b) Plans primarily operate and act like Code Section 401(k) plans and Code Section 403(b) Plans (i.e., a “qualified” retirement plan).  Section 457(b) plans maintained by tax-exempt entities must be “top-hat”  plans, thereby limiting participation to a select group of highly-compensated individuals and management employees.  Numerous non-profits sponsor Section 457(b) Plans as a means of providing additional nonqualified deferral opportunities for their highly-compensated executives.  The Internal Revenue Service (IRS) has decided to take a closer look at these arrangements, announcing recently that it would begin conducting “compliance checks” of Section 457(b) Plans maintained by non-governmental entities (e.g., health systems, educational institutions, museums, etc.).  Though the compliance checks are not full audits, plan sponsors can expect the IRS to request extensive information regarding written and operational plan compliance.

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About this Author

Mary K. Samsa, Corporate Lawyer, Executive Compensation Attorney, McDermott Will Emery, Law firm

Mary K. Samsa is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.

Mary has more than 15 years of experience and has represented a wide range of organizations including, but not limited to, Fortune 100 public companies, privately held companies, multinational organizations and not-for-profit hospital systems as well as educational institutions.  Mary’s primary practice focuses on executive compensation (for both taxable and tax-exempt entities) where she regularly advises on nonqualified deferred compensation...