Non-Profit Organizations and Government Entities Prepare for New Regulations for “Golden Handcuff” Plans Under Section 457(f) of the Internal Revenue Code


The IRS has announced that it expects to publish new regulations for ineligible deferred compensation plans under Section 457(f) of the Internal Revenue Code in the near future. Since the adoption of regulations under Section 409A of the Code, employers and contractors have been on alert that new guidance was in process. The public notices of the IRS and the method in which the Section 409A regulations were implemented provide critical insight as to what can be expected from the new regulations.

Section 457(f) of the Code governs certain deferred compensation arrangements for employees of tax-exempt organizations or government entities. These plans typically require for an employee to provide services for some defined period of time with a promise by the employer to make a payment upon the completion of the stated period. Certain types of these plans are often called “retention incentives” or “stay bonuses” as they encourage the employee to provide services for an extended period of time.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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