Athletic Coaches and the Tax Act

Using a patented actuarial methodology the University Plan Sponsor can provide this without requiring additional recordkeeping, reporting, limitation of covered employees, ERISA and qualified plan rules, employee cooperation, regulatory compliance issues and penalties.

This §457(e)11 plan provides:

• Economically efficient funding;
• Complies with all regulatory requirements without addition recordkeeping and reporting;
• Avoids the risk of forfeiture requirements under §457 (f) and §4960;
• A current death benefit while employed not otherwise available to other employees;
• A patented actuarial methodology to determine the covered participants, the value of the current benefits and the funding of the benefits; and
• Qualifies for exclusion of immediate remuneration recognition required under§457(f), §4960 and §162(m) and during funding.

What Is a §457(e)11 Plan?

A permissibly selective benefit plan, the bona fide death benefit only plan uses a multidisciplinary platform following deferred compensation, welfare benefit plan structures with an actuarially determined current benefit provided for employees and independent contractors. The participants are taxed on the economic benefit so long as the benefit is funded by the Plan Sponsor. A §457(e)11 Plan is a nonqualified ineligible non deferred compensation and non-compensation plan. (26CFR1.457-11, IRC 457 Examination Guidelines).

A Plan Sponsor must be a tax-exempt entity (TEE) (457[e][1]) A participant may be an employee or independent contractor of a TEE §457(e)(2), 1.457-2(d)

A 457(e)(11) Death Benefit Plan does not have to comply with risk of forfeiture or acceleration of income 457(f) requirements IRC §457(f)(11)(A)(1), Notice 87-13 and 88-68.

Payments by the Plan Sponsor to fund a §457 (e)(11) Death Benefit Plan are not taxable income nor are deferred compensation to the participant. In Office of Chief Counsel INFO 2003-0082 (UIL:457.09-05) (Feb. 25, 2003), the OCC interpreted Notice 88-68 to indicate the providing or accruing of the benefits is not a taxable event. It is only when the benefit it provided to the participant is there a taxable or nontaxable event. Providing the benefit thru a §457(e)11 plan does not affect to taxation to the participant, that is addressed under other provisions of the law. The participant by the funding of the benefit is taxed on the Table 2001 rates as economic benefit. As the death benefit is the only benefit provided by participating in the plan, to the extent the benefit qualifies as life insurance under §101(a) it should not be subject to income tax as received by a beneficiary identified in the plan.

The plan may be elective or non-elective and a salary reduction or non-salary reduction plan (IRS Notice 88-68 and Notice 87-13Q&A 26).

A §457(e)11 death benefit plan may be funded with life insurance (REG147196-07 06-21-2016).

How Does the §457(e)11 Work?

• Employer and Employee enter into mutually beneficial arrangement to provide death benefit during employment.
• Employer funds the life insurance over agreed upon period.
• Group arrangement uses a co-ownership format to provide coverage Plan Sponsor expenses contribution.
• Plan Sponsor has no interest in cash values nor death benefit Participant voluntarily requests wage reduction.
• Participant is taxed on the economic benefit using Table 2001.
• Participants benefit not deemed remuneration for §162(m) and §4960 purposes.
• Program provides death benefit only coverage during the years of employment. No distributions other than death benefit allowed. Plan Sponsor and Participant is restricted in access.
• Permanent Life Policies accrue on tax-free basis.
• Policies are reviewed annually.
• Economic Benefit costs stop once contributions are no longer made No Tax reporting upon termination of the Benefit Arrangement.
• After termination of benefit plan, co-ownership arrangement is evaporated.
• Insured may access cash values of policies, or use polices for their personal financial and estate planning.

Administration of the Plan

The §457(e)11 death benefit only is not a qualified plan nor deferred compensation or an ERISA plan. The DOL has specific administrative rules that requires the following:

• Name, address, including email address of plan administrator;
• Permits, but does not require, plan name to be stated;
• Does not require providing plan document; and
• Requires a box to be checked if it is an amended notice.

The website to enroll is https://www.askebsa.dol.gov/efile/Home/tophat.

The Plan Administrator will have to electronically enroll the plan at the time of implementation and will provide proof of filing to the Plan Sponsor.

Third-Party Validation

At the time of implementation, the 457(e)11 plan should receive from an independent third party validation:

• A well-reasoned legal memorandum indication that the plan complies with all applicable regulatory requirements;
• An actuarial report supporting the contribution and it reflecting the cost of the current death benefit thru age 67; and
• A report from actuarial firm should indicate that the amount of the funding of the policy meets required benchmark to qualify under §457(e)11 and Regs.Sec. 31.3121(v)(2)-1(b)(4)(iv)(C)(2) as a bona fide death benefit plan.

If the University or healthcare entity is not currently using this planning tool and no other benefit plan available to nonprofits provides this multidisciplinary tool to recruit, retain and rewards the nonprofits organization's highly prized employees and independent contractors are missing out on the opportunities and they may look elsewhere and desert the service provider. This is another leg of the stool to provide executive benefits in the most economically efficient manner while being regulatory compliant.

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Lawrence L. Bell, JD, LTM, CLU, ChFC, CFP®, AEP, a member of this newsletter's Board of Editors, has served as Tax Bar liaison to the IRS for 10 years. He has received patents in actuarial product fields dealing with COLI, GASB, FASB, IASB and OPEB solutions. To learn more, visit www.mycpo.net.