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State Law Different From Internal Revenue Code


Guest alan24
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Guest alan24

Has anyone run up against a situation where the State law (i.e Constitution, etc.)

regarding a State pension plan differs from the Internal revenue Code? If so, what is the result...does the plan not qualifiy as a "qualified plan", which seems to be a harsh result.

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Guest alan24

For instance, as an example, the State Constitution may allow a participant to borrow up to 75% of his account balance, whereas the IRC limits the loan amount to 50%. Since the Constitution is not easily changed, what can the State do-it appears unfair to disqualify the plan.

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The question might be whether or not the IRC section that you are referring to applies to this or a governmental pension plan?

What IRC section has this 50% limitation?

What IRC section governs this particular state pension plan?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest alan24

I am jsut trying to find out whether anyone has encountered a situation where the Code and the State law at are odds with one another--what happens?

The 50% loan provision was just by way of example.

Thanks.

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The plan is still subject to the IRC. The plan is usually fixed to conform to the IRC after the violation is discovered without any consequences to employees. The NJ state pension fund got into trouble with the IRS because one year NJ removed plan assets to balance its budget. The IRS required that NJ add the exclusive benefit rule and promise not to do it again. NYC got caught for the same violation last year with the same result.

A few years ago the RI state retirement plan got into trouble with the IRS because it permitted benefits in excess of the 415 limits.

mjb

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Guest alan24

Thanks--u have been very helpful. This is just such a great resource for ERISA professionals and I greatly appreciate everyone's comments.

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Note that several places in ERISA and the IRC state that governmental plans are exempt, but must still comply with pre-ERISA IRC. See for example, IRC 411(e)(2).

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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