Non-profit businesses often have a challenging time competing for talented executive leaders because of perceived limitations on long-term compensation. This is due to the specific nonqualified retirement plan rules under Section 457. These rules make it more challenging to accumulate value for executives under phantom stock plans because they may impose taxation on plan values as soon as time or circumstances remove the risk of forfeiture within the plan.
However, plan advisors are often able to work within these rules and achieve similar results as in for-profit companies. Often the organization will offer a combination of 457 retirement benefits, severance agreements and performance-based deferred bonuses. Both the retirement account and the deferred bonus arrangement can be built around the organization’s financial or other performance goals.