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[Update] Final 457(f) Regulations Postponed

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Last year, the IRS proposed 457(f) regulations which may affect schools, cities and counties sick leave and unused vacation payouts at retirement. It was unclear whether these plans would be considered “bona fide” or a type of non-qualified deferred compensation. If the plans were deemed deferred compensation, employees would be subject to tax liability equal to the value of the unused leave.

At this time, the IRS has not been able to reach an agreement regarding a safe harbor provision on whether a leave plan is bona fide under the proposed tax-exempt deferred compensation regulations. An agency official stated that the final 457(f) regulations will most likely not be out this year. They hope to release this guidance simultaneously with other related guidance at a later date.

The agency official stated that “the IRS will develop guidance providing employers peace of mind if they want a program that allows employees to exchange their leave for cash. We don’t want to ban this; we recognize that it’s a very attractive recruiting tool to states and nonprofits that are not awash with cash to compensate their employees highly." It is unknown yet what form of guidance the safe harbor provision will take. It will either be proposed regulations or a notice followed by proposed regulations offering more opportunity to comment.

Stay tuned to the NIS Benefits blog to keep abreast of any updates to this legislation. If you are not already receiving our newsletter, you can subscribe here. In the meantime, National Insurance Services (NIS) and our partner, MidAmerica will continue to monitor the situation.

National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.

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Trent Teesdale

Trent Teesdale

Trent Teesdale knows what he’s doing. When clients have questions, he brings his A game, making the complicated, simple to understand. Trent’s knowledge and technical expertise puts clients at ease, instilling confidence and reassurance that creates long-term, loyal customers. No problem is too big or too small when Trent is on your side – he will lay out the details, gather facts and work toward a productive resolution. Trent is the Senior VP of Business Development at MidAmerica Administrative & Retirement Solutions, administering Social Security Alternative Plans, Special Pay Plans, HRA, FSA, 403(b) TPA Services and the ACA Compliance Review. He is licensed in Life and Health Insurance, as well as Variable Annuities in the state of Florida. His current designations include Retirement Plan Administrator (RPA), Group Benefit Administrator (GBA) and Certified Employee Benefit Specialist (CEBS) through the International Foundation in conjunction with the University of Pennsylvania Wharton School of Business.