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It is my understanding that a ITG is not eligible to participate in a 457(b) plan. Therefore, as they are covered under 414(d) and can have a Governmental Plan, could they have a 414(h) pick-up feature in their 401(a) plan.

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It is actually unclear whether an ITG can maintain a 457 plan. Certain tribal governments have, in the past, maintained Section 457(b) plans for their employees, on the theory that they should be considered state or local governments. Advance Notice of Proposed Rulemaking REG-133223-08, filed with the Federal Register on November 7, 2011, [72 Fed. Reg. 69188 (Nov. 8, 2011)] describes the rules the Treasury Department considers proposing relating to the determination of whether a plan of an Indian tribal government is a governmental plan within the meaning of Section 414(d) and contains an appendix that includes a draft notice of proposed rulemaking on which the Treasury Department invites comments from the public. However, it deals only with the issue of whether an ITG is "governmental," not whether it is a "state or local government."

Note that in most respects, section 457 represents a limit on what could otherwise be deferred, not an enhanced benefit. A governmental employer that is not permitted to have a 457 plan could have an unfunded nonqualified deferred compensation plan that could allow for unlimited deferrals, rather than being limited to the $17,500 that could be deferred under a 457 plan. Because a government is not subject to ERISA, such a plan would not have to be limited to highly compensated and management employees, the way an unfunded deferred compensation plan for a private employer would. The only disadvantages of such a plan over a governmental 457 plan would be that it could not allow rollovers and could not be funded.

However, in the case of an ITG, the uncertainty over whether a 457 plan is permissible means that whatever approach you take carries risks. If you attempt to adopt a 457 plan, and it is found not to be a 457 plan, the fact that it is funded could cause negative tax consequences for participants. If you attempt to adopt an unfunded deferred compensation plan outside of 457, and 457 is found to apply, then 457(f) could cause negative tax consequences to participants.

By contrast, it is clear that an ITG can have a 414(h) pick-up feature, as section 414(h) explicitly states as follows:

For purposes of paragraph (1), in the case of any plan established by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing, or a governmental plan described in the last sentence of section 414(d) (relating to plans of Indian tribal governments), where the contributions of employing units are designated as employee contributions but where any employing unit picks up the contributions, the contributions so picked up shall be treated as employer contributions. [Emphasis added.]

Of course, unlike a 457 plan, a pick-up arrangement cannot allow for employees to change the amount of their contributions from year to year.

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The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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