Proposed Regulations Create (Some) Executive Compensation Design Opportunities for Tax-Exempt Employers
It has been a long time coming (nine years to be exact), but the Treasury Department has at last published proposed regulations that harmonize important concepts governing deferred compensation arrangements under Code Section 409A and Code Section 457. The proposed regulations contain no major surprises that would shake up the world of deferred compensation for tax-exempt employers. But the proposed regulations do provide important new rules under Code Section 457 that: (1) explain the meaning of “substantial risk of forfeiture”; (2) develop existing regulations regarding plans that are not subject to Code Section 457; and (3) help calculate amounts to be included in income under the Code Section 457 tax regime. The new proposed regulations provide greater clarity regarding these important concepts and can be said to offer new opportunities to tax-exempt employers in designing certain types of executive compensation arrangements (or perhaps, more accurately, resurrect design elements that have fallen into disuse).