IRS proposes deferred compensation rule for governmental and tax-exempt entities

The IRS has issued a proposed rule on nonqualified deferred compensation plans maintained by tax-exempt organizations (other than churches and certain church-controlled entities) and state and local governments. The proposed rule provides guidance for plan sponsors in determining when amounts are includible in employees’ incomes, the amounts that are includible, and the types of arrangements not subject to the requirements of tax code section 457. This bulletin focuses on what many plan sponsors and participants may consider the most significant portion of the proposed rule: the expanded definition of a “substantial risk of forfeiture” in 457(f) plans.