davef

The new user fees for determination letters are effective 7/1/06. The IRS even says so at their website: http://www.irs.gov/charities/article/0,,id=151893,00.html

While 409A does technically apply to 457(f) plans, many 457(f) plans will not be affected by 409A to any great extent because they will fall under the "short-term deferral" exception -- distributions will occur within 2-1/2 months after there is no longer a SRF.

This may or may not apply to this person's situation, but you may need to also think about the defintion of Compensation under the 401(k) plan and for 415 purposes. If you are adding back in pre-tax contributions, you won't be able to include the 457(b) contributions, since those are through a different employer.

I don't believe that 409A has any impact on self-funded retiree medical plans that are discriminatory. The proposed regs carve out from the definition of nonqualified deferred compensation "a health reimbursement arrangement that satisfies section 105 and section 106." The fact that a self-funded plan may be discriminatory doesn't mean that it doesn't still fall under section 105 -- there is just tax consequences for HCEs. Besides, it's hard to envision how the requirements under 409A would ever apply to these plans.

George, you might want to look at this thread on the topic. It should give you some more insights into the issue. http://benefitslink.com/boards/index.php?s...=0entry108388

The fact that a credit union is state chartered does not mean that it is considered a state government entity -- at least the IRS has never taken that position. Being state chartered basically means that the CU is governed by state CU laws and regulators, rather than federal CU laws and regulators (i.e., NCUA). They are tax-exempt entities under IRC 501©(14).

Federal employees cannot be covered under a 457 plan. These plans are limited to tax-exempt (nongovernmental) employers and state and local governments. It's my understanding that the reason no Federal employees are covered under a nonqualified deferred comp plan is due to the full faith and credit rule, which says that the US Government stands behind its promises to pay -- which means that any amounts set aside would never be subject to creditors' rights and there would be taxation under the economic benefit doctrine.

457(f) plans that have rolling risks of forfeiture might be impacted by the new rules. Depending on how legitimate a plan's rolling vesting schedule is, the new rules could create a taxable event sooner than anticipated.

There are several court cases that have stated that FCUs are federal instrumentalities. See, for example, US v. State of Michigan, 851 F2d 803 and TIFCU v Delbonis, 72 F3d 921. The PLR does not specifically apply to just 457(b) plans. It focuses on whether a FCU is an "eligible employer" under 457(e)(1)(A) or (B), and concluded that it is not an eligible employer. So, a FCU is not subject to either 457(b) or (f). I've had conversations with the attorney who requested the PLR on behalf of the FCU. As mbozek correctly assumed, the PLR would not have been requested if the FCU had wanted to be subject to 457. You may have noted a reference in the first paragraph of the PLR to a ruling request that was withdrawn. According to the attorney, that ruling request asked what Code section would apply if 457 didn't. According to the attorney, the IRS requested that he withdraw that request, since they hadn't sorted through all the issues and it would have significantly delayed the issuance of the PLR. In our conversations with the IRS, they said that when the recent 457 regs were being drafted, they added the word "instrumentality" to the definition of "eligible employer" with the intention of further defining what a "governmental unit" was. That's why the statute only mentions "governmental unit" whereas the regs include "instrumentalities."

You can also read about this in the Credit Union Times (http://cutimes.com/archives/default.asp?week=2), but I had the chance to talk with the IRS several weeks ago about the need for additional guidance on the PLR. This is on the IRS' Priority Guidance Plan, so something should be issued in the near future -- at least by 6/30/05. The IRS gave no indication that it would reverse its position in the PLR. One point that the IRS made was that FCUs should not view the PLR as putting them on notice that they need to amend their exisitng 457 plans or can't set up a new one. Any transition rules will be on a prospective basis. As far as FCUs having the option of applying the stricter 457 rules, the IRS noted that if the 451 rules apply to FCUs (they would not commit to that right now), then the more favorable deferral election rules under 457 could not be used. Deferral elections under 451 would need to be made further in advance than those permitted under 457.

A federal credit union is exempt under IRC 501©(1), due to the Federal Credit Union Act making it an instrumentality of the US. A state-chartered credit union is exempt from tax under IRC 501©(14). The PLR generally stated that the federal credit union was not an eligible employer under 457. So it could not establish either a 457(b) or (f) plan. The PLR has not been officially published. I can fax you a copy if you are interested. It's my understanding that the original ruling requested the IRS to state what rules would apply if 457 didn't. However, that ruling request was withdrawn at the last minute. Presumably, IRC 451 would apply (similar to the rules that applied to tax-exempts prior to TRA-86), but we may need to wait for guidance from the IRS on that.

I know this topic has been discussed before, but I thought I would revisit it in light of the recent filing deadline for GUST restatements. It's my understanding that an amendment to change testing methods could be made up until the end of the GUST RAP. For those plans that filed for determination letters by the end of January, is the GUST RAP now extended for 91 days after the date the determination letter is issued (per Reg. Sec. 1.401(b)-1(d)(3)). If so, can an amendment changing the testing method still be made within this timeframe?

When reporting a distribution to an alternate payee under a nongovernmental 457(b) plan, do you use Form 1099-R or W-2? The instructions to Form 1099-R discuss the reporting for distributions to participants (W-2) and beneficiaries (1099-R), but are silent as to alternate payees. Any help would be appreciated.

In order to rely on the 12-month RAP extension for M&P and VS plans (and to demonstrate to the IRS that you are not late in adopoting/filing the plan), you will also need to include either: (1) a GUST certification that the employer signed on or before 2/28/02; or (2) the prior M&P or VS plan document. In the cover letter, I also mention that the provider of the GUST document submitted the plan to the IRS prior to 12/31/00. This has usually been sufficent to avoid any additional requests for documents.

We have discovered that an employer allowed participants to enter the plan too early for the last two years. Based on the EPCRS procedures, it looks like we can retroactively amend the plan's entry date provisions to cure the problem. A determination letter would also need to be requested on the retroactive amendment. Since this plan has not yet been restated for GUST, is it possible to fold the retroactive amendment into the GUST restatement, file for a DL and still meet the EPCRS requirements? Or is a separate DL required for the SCP retroactive amendment?

A participant in a tax-exempt 457(b) plan terminated employment in 2001 and elected to defer her distribution until 2005, when she reached age 65. In December 2002, she requested (and received) a partial payment of $32,000 to pay for a down payment on a house. Does this amount to a revocation of her initial election to defer her distribution and result in the all the amounts deferred under the plan being taxed because now they are "paid or made available"? Or is just the $32,000 taxed?

I believe that the exemption will apply depending on when the plan was initially effective. It's my understanding that if the plan was initially effective on or after December 8, 1989 (the 5-year period preceding the start of the GUST remedial amendment period), and it met the 100 employee rule, the exemption will apply.

I've had problems where the IRS wants us to spell out the definition of "leased employee" even though we have incorporated that definition by reference in the past and have received determination letters on the language. I believe that the reviewers are relying on an IRS Quality Assurance Bulletin from 2000, which tells them which Code provisions can be incorporated by reference. Basically, they are taking the position that if there is no regulatory authority to incorporate by reference, then you can't do it. I was sent a copy of this Bulletin when I questioned them about the leased employee issue. If you want a copy of the Bulletin, let me know. Funny thing is, the Bulletin says that 414(p) can be incorporated by reference and cites as the source Reg. Section 1.401(a)-13(g). However, I could not find any specific language in that regulation about incorporating by reference -- just a statement that the plan didn't need to include QDRO provisions.

To follow up on my previous post, I talked today with the IRS about this issue and they said that if the prototype plan was entitled to an extended GUST RAP prior to the termination (in accordance with Rev. Proc. 2000-20), the GUST RAP stays the same. The termination will not accelerate the expiration of the GUST RAP, so that GUST amendments can be adopted after the termination date. Word to the wise -- to avoid any problems when you file the 5310, you should also provide some evidence that the plan is entitled to the extended RAP, such as a prior AA or certification (this is actually covered in Rev. Proc. 2002-6, sec. 6.10).

You could move the plan termination date past the date the amendment was adopted, so that the plan would be considered amended for GUST as of its termination date.

A number of years back, in connection with TRA-86, the IRS issued Notice 87-57, which said that a terminating plan had to be amended "no later than the termination" to comply with TRA-86. Currently, under Rev. Proc. 2002-6, all it says is that the plan must be amended "in connection with the plan termination" to comply with current law, which could be interpreted as a softening of the IRS' position taken in Notice 87-57, since there doesn't appear to be a "no later than" requirement anymore. Assets have not been distributed yet -- which could support an argument that the plan isn't "officially" terminated unitl they are paid out. Also, since contributions were frozen in conjunction with the termination, would it be possible just to move the termination date without any adverse impact on the plan?

What is the deadline for adopting a GUST amendment for a terminated plan? I have a situation where the plan's termination date was 2/1/02, the GUST amendment was not done until May '02 and the 5310 filed sometime after that. The plan is a prototype plan that would have had an extended RAP but for the termination. The IRS is saying that the GUST amendment should have been adopted by 2/28/02 and that it is now a non-amender. Looking at Rev. Proc. 2002-6 (sec. 12.06), it seems to say that a plan can be amended after its termination date in order to get a determination letter. Wouldn't this apply with respect to GUST amendments? Any help would be appreciated.

I agree. The letter dealt with a person who retired from a full-time position and was rehired as a part-timer. The IRS pointed out that the underlying issue was whether a bona fide separation from service would occur where the employer and employee had discussed the re-hire arrangement before the person retired. While the IRS could have been more direct in coming to its conclusion, it did cite some other sources where the rehire was not initially contemplated, and which was considered to be a separation from service.

This termination/rehire issue was discussed in a 2000 Information Letter from the IRS (#2000-0245). It was summarized in EBIA's 10/26/00 weekly on-line newsletter. Basically, the IRS said that if there was no bona fide separation from service, the plan (a 401(k) plan) could be disqualified. If anyone wants a copy of the letter, I can fax it to you.

Because the employer adopted the plan within the GUST remedial amendment period, it had until the end of the RAP to get a determination letter. Assuming that 2/28 was the end of the RAP for this plan (i.e., it's not a prototype plan that has an additional period of time to submit), it certainly looks like a GUST non-amender that can be fixed under the Rev. Proc. I don't believe that it needed to get a TRA-86 letter.