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Credit Unions and deferred compensation applicability


Guest Monster
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Guest Monster

My understanding is that no Credit Union could ever be a governmental 457 plan - but why? I can't specify what it is about these organizations that dictates they be non-governmental deferred comps (and if I'm wrong on this count - please tell me!) What section of the Code covers these plans? I'd like to be able to refer to it. Thanks!

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Federally chartered credit unions are organized under the Federal Credit Union Act and are considered instrumentalities of the United States. As such, they are tax-exempt entities under Code Sec. 501©(1). State chartered credit unions are tax-exempt under Code Sec. 501©(14). The issue you raise applies more to federal CUs than state CUs. It is my understanding that federal CUs are considered as tax-exempt entities (rather than governmental employers) for purposes of maintaining 457 plans and 401(k) plans. There is not much guidance on this point, but you may want to take a look at PLR 9550030 or PLR 9749014 or Rev. Rul. 89-49. Hope this helps.

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Guest Ralph Amadio

No clarification here, just more confusion. California has many 457 plans sponsored by and administered by Credit Unions. CUNA Mutual Life Insurance Company may be a good source for your questions.

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Sorry for any confusion. I was just trying to explain how the tax-exempt status of credit unions is derived. It differs depending on whether the CU has a federal or state charter. To my knowledge, all CUs are considered tax-exempt and are eligible to sponsor 457 plans. I would imagine that many of the California CUs you mentioned have a federal charter (For example, if the CU's name is "[name]Federal Credit Union" it has a federal charer.)

That said, there has been a recent trend where some CUs have converted to mutual savings banks. If this happens, they are no longer tax-exempt, and no longer eligible to sponsor 457 plans.

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Guest Kathleen Meagher

CUs that are tax-exempt but are not "governmental" are subject to ERISA. Any deferred compensation plan of a tax-exempt employer is subject to the trust requirements of ERISA. Because Section 457 provides that deferrals of tax-exempts *can't* be held in trust, the upshot is that CUs and other tax-exempts can't have 457 plans for anyone other than the "top-hat" group. I've seen several CUs that adopted 457 plans for the rank and file, and were caught in this 457 "Catch-22."

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