Non-Qualified Plans for Federal Credit Unions

[Cowgirl83]

A federal credit union wants to offer its executives a non-qualified plan.  As a tax-exempt employer, they had inquired about creating a 457(b) plan.  After an initial discussion regarding the deferral limits applicable to 457(b) plans, they wanted to explore either 457(f) or 409A.  During my research, I have come across discussions regarding the  issue of how FCU's should be classified (PLR 200430013 and IRS Notice 2005-58) and that effect on what type of NQ plan they can sponsor.  It  is not clear to me as to whether or not this issue has been resolved, particularly if the plan is just now being created. Can a FCU create and sponsor a new plan under 457(b)? 457(f)? 409A? If so, is there a good reference source for guidance on the best options available?      

[ErnieG]

It is my understanding, referring to IRS Notice 2005-58 and Treas. Reg. Sec. 1.457-11 as the most recent guidance, a Federal Credit Union may establish either plan.  However if they are establishing an ineligible plan under 457(f) it must also meet the document and operational compliance with both 457(f) and 409A.

[Luke Bailey]

2 hours ago, ErnieG said:

It is my understanding, referring to IRS Notice 2005-58 and Treas. Reg. Sec. 1.457-11 as the most recent guidance, a Federal Credit Union may establish either plan.  However if they are establishing an ineligible plan under 457(f) it must also meet the document and operational compliance with both 457(f) and 409A.

Right. The PLR was just erroneous, and IRS Notice 2005-58 implies as much, but I don't think the IRS wants to do anything stronger than that (e.g., a Rev. Rul.) until they finally, someday, in some decade move forward with regulations defining what is a governmental plan. Right now there is just an ANPRM and they have been saying for several years that the proposed regs are close. There are some really tough issues defining what is a governmental plan, but figuring out that a federal credit union is not a governmental employer is not one of them.

[XTitan]

16 hours ago, Luke Bailey said:

ANPRM

Today I learned ANPRM = Advanced Notice of Proposed Rulemaking

[Christine Roberts]

Related question - can Federal Credit Union employees use the age 50 catch up contribution or does that conflict with the "non-governmental" benefit status that is required in order to sponsor a 457(b) plan, under the IRS Notice??

[EBECatty]

I have only ever used the three-year catch-up contribution rule for 457(b) plans for FCUs (which usually isn't very helpful as they generally have maxed out the 457(b) limit each year). 

[LRRichey]

Luke is spot on. The ANPRM is ANPRM, Reg. 157714-06, 76 Fed. Reg.  69,172 (Nov. 8, 2011).  See Tax Management Portfolio, 386-5th T.M., Insurance Related Compensation, pg. A-85, especially Footnote 650.  I had an IRS website address for this ANPRM but the IRS seems to have removed or changed it, and could not find it quickly otherwise. 

[Peter Gulia]

Here’s a link to the notice: https://www.govinfo.gov/content/pkg/FR-2011-11-08/pdf/2011-28853.pdf.