Substantial Risk of Forfeiture: IRC 409A and 457

Fulcrum Partners Executive Benefits News, Fulcrum Partners News

Summary: Substantial Risk of Forfeiture, IRC 409A and 457.

 After the U.S. Treasury announced changes and modifications to Sections 409A and 457 of the Internal Revenue Code this past June, it also initiated a standard period during which comments could be filed regarded the proposed changes. The deadline for submitting comments to the IRS, regarding modifications to Sections 409A and 457, closed on September 20, 2016.

In a previous blog post, Fulcrum Partners News shared concerns voiced by the Permanente Medical Group, Inc. (TPMG) regarding issues of Bona Fide Volunteers, Separation of Service, and 409A Tax Code Modifications (For more on this see: Could 409A Tax Code Negatively Impact Volunteerism?).

Substantial Risk of Forfeiture: IRC 409A and 457

Today’s Fulcrum Partners News update looks at another issue that was voiced during the open comment period, that of defining “Substantial Risk of Forfeiture.”

In comments raised by Ice Miller LLP (“Ice Miller”) re: Substantial Risk of Forfeiture (457 Regulations), a suggestion was made regarding definition. (You can read this comment and recommendation in entirety here: Fulcrum Partners LLC IRS Comment Letter Substantial Risk of Forfeiture).

Regarding 409A Regulations, likewise, Ice Miller suggested clarification of the  definition of Substantial Risk of Forfeiture, recommending the following edits:

We also note that the first sentence of the Treasury Regulation Section 1.409A-1(d) could be read to preclude changes that appear to be permitted by language set out later in the same paragraph. To address this issue and the potential inconsistency between the regulations under Code Sections 409A and 457(f), we recommend that the first sentence of Treasury Regulation Section 1.409A-l(d) be revised to read as follows: Except as provided with respect to certain transaction-based compensation under § 1.409A-3(i)(5)(iv), as provided in this paragraph, or in the case of amounts subject to Code Section 457(f), with respect to additions or extensions of risks of forfeiture permitted under Treasury Regulation 1.457-12(e)(2), the addition of any risk of forfeiture after the legally binding right to the compensation arises, or any extension of a period during which compensation is subject to a risk of forfeiture, is disregarded for purposes of determining whether such compensation is subject to a substantial risk of forfeiture.”

Additional Resources


Click to view or download as a PDF.

For an overview of all proposed changes see: Report from Fulcrum Partners 409A and 457 Updates Fulcrum Partners LLC (August 2016)

Further updates on the proposed modifications of 409A and 457 Tax Code Tax Code:
Previous posts on Fulcrum Partners News on 409A or 457 changes and how these modifications may affect your executive benefits plan:
This information is intended solely for information and education and is not intended for use as legal or tax advice. Reference herein to any specific tax or other planning strategy, process, product or service does not constitute promotion, endorsement or recommendation by Fulcrum Partners LLC. Persons should consult with their own legal or tax advisors for specific legal or tax advice.
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