We have a intragovernmental agency which is now a tax-exempt nonprofit organization.
The same individual will remain in charge.
The board for the agency (now the board for the tax-exempt) had made a $6,000 employer contribution to a §403(B) for this individual. Given the discrimination rules that now come into play with a tax-exempt, we need an alternative plan for providing $6,000 to this person on a tax-deferred basis. One thought is an unfunded deferred compensation plan (or through a rabbi trust).
Would such a plan be considered an ineligible
457 plan? If so, are there unresolved issues related to such plans? Any help is appreciated.



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It seems to me that you'd want to look at an eligible 457 plan to avoid the substantial risk of forfeiture rules under 457(f). The employer could contribute up to $8000 per year (indexed) to the eligible 457 plan. The plan probably can't be funded (depending on the nature of the governmental entity you're dealing with) but doesn't have to worry about nondiscrimination. You do need to look out for the coordination rules in 457© if this exec is contributing to the 403(B) plan.

As an aside, are you sure that this is an eligible 403(B) employer, i.e., are you sure they are a 501©(3)?

Note that the service has found that mbc's associated closely with public education in the past have been closely aligned enough to continue participation in other forms of governmental plans, and also that certain other local governments formed with participating public schools have been allowed to participate in 403(B)'s. Sounds like PLR time.

Concurring with what Ralph said, you should check carefully to see whether the new agency might still be eligible for governmental status. The test as set forth in private letter rulings has dealt more with function than form. Thus, for example, "private" bus companies which take over from a municipal transit system have been held to be governmental. If the organization is still in effect controlled by the various governmental entities, the fact that it is separately incorporated and/or also has 501©(3) status would not preclude it from continuing its old governmental plans.
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[This message has been edited by CVCalhoun (edited 01-03-2000).]