Some vendors are marketing products that incorporate aggressive tax positions, e.g., rolling extensions of risk of forfeiture. The absence of official guidance results in tax uncertainty. Another approach being marketed is a vested benefit with a conditional risk of forfeiture. For example, payment of deferred benefits may be contingent on adherence to a non-complete agreement, or performance of consulting services following termination of employment. It is unclear how 457 would apply to a SERP with an offset, where the benefit provided under the SERP may automatically decrease, e.g., as the benefit under a qualified plan increases.
Issues arise as to valuation.
Under existing regulations, earnings credited on deferred compensation that has been taxed to the participant are includible in taxable income only when paid or made available. In PLR 9444028, the IRS indicated that earnings can be vested currently, even though the underlying deferrals are subject to forfeiture. D. Severance plans are not subject to 457. The Service has taken the position that the DOL safe harbor for determining severance pay is not necessarily a safe harbor under 457. Voluntary elective severance arrangements are being marketed, but an employer may want to preserve the option to use severance benefits for other purposes, such as in connection with an involuntary termination or a reduction in force.