This document discusses deferred compensation plans for non-profit organizations. It defines deferred compensation plans and describes the main types: 457(b) and 457(f) plans. 457(b) plans allow executives to defer compensation until retirement and have contribution limits and required minimum distributions. 457(f) plans have no limits or restrictions. The document recommends a "bottom up" funding approach and provides guidance on reporting deferred compensation on Form 990 and Schedule J based on vesting. It provides contact information for Grant Thornton professionals who can provide additional details on compensation and benefits for non-profits.

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Hot Topics
Hot
Topics
Compensation and
Benefits for
Not-for-Profit Entities
Deferred
Compensation

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Here’s some
Background
A deferred compensation plan works similarly to a
401(k) retirement plan but with important differences:
• A deferred compensation plan allows executives to elect to
defer a certain amount of compensation to a plan where the
money is invested until they terminate or retire
• The Internal Revenue Code imposes rules on when and how
executives make their elections, when they may receive their
balance in the plan, and when they may change these elections

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Types of plans
• Unlike a 401(k) plan, the Internal Revenue Code requires
that amounts deferred by executives be treated as
general assets of the employer until paid in order to defer
recognition of income until the payment date.
This leads to some accounting differences and certain
tax rules.
• These rules are set forth in Internal Revenue Code section
457, so the two types of plans are usually referred to as
457(b) and 457(f) plans

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Long-term/Deferred
compensation plans
457 plans are fairly
prevalent in the NFP
community
They provide leadership
teams with an additional
retirement planning
vehicle

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Plan Contribution
limit
Distribution timing Included in
Income
457(b) • $17,500
in 2014
• Age 50 $5,500
catch-up
(gov't entities)
• Severance from
employment
• Unforeseeable emergency
• Attainment of age 70½
(okay even if still
employed)
• One-time $5,000
distribution
• Required minimum
distributions at age 70½
(unless still employed)
• FICA – Upon
vesting
• Income tax –
When paid
457(f) Unlimited No restrictions FICA and income
tax – Upon vesting

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Best practices

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Take a “bottom up” approach
of maximizing funding in a 401(k) plan,
then maximizing funding in a
457(b) plan,
then funding all remaining
deferred compensation into
a 457(f) plan

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This approach is best for executives
because …
401(k) plans have more income tax advantages than
• 457(b) plans
457(b) plans have more income tax
advantages than
• 457(f) plans
457(f)
457(b)
401(k) or
403(b)

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Nonqualified deferred compensation plans
Form 990/Schedule J reporting
Reporting for contributions varies depending on whether vested or
not vested at the time contributed to the plan
Contributions not vested at the time credited (for cliff vesting, assume ratable crediting;
don’t include investment earnings)
Contributions vested at the time credited (don’t include investment earnings)
Form 990,
Part VII,
Schedule A
Columns (D) and (E) Column (F)
Reportable compensation (W-2/1099-MISC)
from the organization and from related
organizations
Other compensation from the
organization and related
organizations
Schedule J,
Part II
Column
(B)(i)
Column
(B)(ii)
Column
(B)(iii)
Column
(C)
Column (D)
Base
compensation
Bonus and
incentive
compensation
Other
reportable
compensation
Retirement
and other
deferred
compensation
Nontaxable benefits

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Nonqualified deferred compensation plans
Additional reporting when prior year nonvested contributions vest
– Include accumulated investment earnings in amount
Form 990, Part
VII, Schedule
A
Columns (D) and (E) Column (F)
Reportable compensation
(W2/1099-MISC) from the
organization and from related
organizations
Other compensation from
the organization and related
organizations
Schedule J,
Part II
Column
(B)(i)
Column
(B)(ii)
Column
(B)(iii)
Column (C) Column
(D)
Base
compens
ation
Bonus
and
incentive
compensa
tion
Other
reportabl
e
compens
ation
Retirement
and other
deferred
compensation
Nontaxable
benefits

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Additional reporting considerations for
nonqualified deferred compensation plans
Nonvested amounts reported in prior year:
– Reported again in year of vesting, per prior slide
– Be sure to include in Schedule J, Column (F)
– No similar column on Part VII, so explain double
reporting in Schedule O

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Deferred Compensation
Core Form 990, Part VII and
Schedule J Reporting
If payment requires the employee to perform services
for a period of time, amount is treated as accrued or earned
ratably over the course of the service period (even if not yet
funded and subject to substantial risk of forfeiture)

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Exception
Entitlement to payment is contingent on satisfaction of
specified organizational goals or performance criteria
(other than mere longevity of service)
Instructions clarify that amounts deferred from a tax year
to a date that is not more than 2½ months after the end of
the tax year are not treated as deferred compensation

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Ken Cameron
Director
Compensation and Benefits Consulting practice
National Not-for-Profit & Higher Education CBC Co-Practice Leader
ken.cameron@us.gt.com
+1 404 704 0136
Eddie Adkins
Partner
Washington National Tax Office
eddie.adkins@us.gt.com
+1 202 521 1565
Mike Monahan
Assistant Managing Principal, New York/New England Territory
CBC and PWS Tax Practices – Principal-in-Charge
National Not-for-Profit & Higher Education CBC Co-Practice Leader
michael.monahan@us.gt.com
+1 212 542 9860
Contact
information Learn more from our
NFP leaders

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