Assignment 10 - 457 plans

Question 1

even if not a cash benefit there can be an economic benefit to an EE

Answer 1

Doctrine of econ. benef.

Question 2

income is considered to be rec’d when an indiv. has control over the receipt of the income

Answer 2

doctrine of constructive receipt

Question 3

types of ERs who can sponsor a 457 plan

Answer 3

• tax-exempt non-profits (nongov’t schools, private hospitals, labor unions, charitable orgs, and private clubs)
• gov’t entity (state or local)

Question 4

is there coordination w/ other salary deferral plans and 457 plans

Answer 4

NO

Question 5

are loans permitted with 457 plans

Answer 5

• permitted ONLY with gov’t 457 plans

- NO for tax-exempt ERs

Question 6

diff. b/w gov’t and non-profit 457 plans

Answer 6

• *gov’t plans:
• must have a trust acct and actually fund the plans
• can permit loans
• can rollover into IRAs
• can cover all EE’s
• *non-profits
• only can cover “select group of mgmt”

Question 7

*allows partics. to reduce their taxable salary in a manner similar to 401K plans
EE’s enter into an agreement w/ their ER to reduce present compensation or to forgo a raise or bonus in return for the ER’s promise to pay benefts at a future date.

Answer 7

pure deferred compensation plan

Question 8

*provide execs. w/ supplem. retirement income

ER pays an additional, suppl. benef. w/o reducing the EE’s present compensation, raise, or bonus

Answer 8

supplemental benefit arrangement

Question 9

max annual deferral amount

Answer 9

$15,500 (2007)

Question 10

what happens to amts in excess of max annual deferral amt limit?

Answer 10

treated as made available and subject to normal taxation in the taxable year deferred

Question 11

are partic. allowed to defer more than the normal limit in the years immediately preceding normal retirement age?

Answer 11

Yes - during any or all of the 3 taxable years ending b4 normal retirement age
- use “catch-up” provision

Question 12

Normal Retirement Age

Answer 12

• must be specified in the plan in order to use the incr’d catch-up provision
• may not be defined as an age later than 70 1/2

Question 13

when are benefits made available?

Answer 13

• severance from employment
• faced with “unforeseeable emrgency”
• calendar year when the partic. attains age 70 1/2 (if later)

Question 14

distribs. from 457 plans are exempt from 10%penalty tax

Answer 14

• distribs. from 457 plans are exempt form the 10% penalty tax on w/drawals made before the age of 59 1/2 except for portions attributable to rollovers form another type of plan

Question 15

457 and discrimination

Answer 15

• can be offered on a discriminatory basis w/ partic. limited to only a few EE’s or a single EE

Question 16

Ineligible Section 457 plans

Answer 16

• no limits on amt of deferrrals made per year

- to receive tax-pref’d treatment, amts deferred must be subject to “substantial risk of forfeiture”

Question 17

ERISA’s rptg and disclosure requirements

Answer 17

• state/local gov’t ER plans = exempt

- nongov’t tax-exempt ER plans = must meet these requirements

Question 18

How are 457 plans used?

Answer 18

• state/local gov’t = provide salary deferral opportunities for EE’s that they would receive if on a 401K or 403b plan
• Nongov’t tax exempt = provide supplem. retirement benef. for certain high-paid exec.

Question 19

Do max deferrals need to be coordinated with other plans?

Answer 19

• since EGTRRA 2001 = NO

Question 20

Direct disadvantage of 457 plans

Answer 20

• plan assets are subject to the claims of the ER’s creditors