New Governmental 401(k) (Yes, it's true . . . )

[lkpittman]

Has anyone set up a 401(k) for a governmental water/irrigation district/agency under 401(k)(7)(B), as amended under TRA 97? We're going to set one up for a client, but I'd like to know if anyone has done it and submitted to IRS yet?

[davef]

I haven't set one up yet, but I'm having a hard time thinking how these would operate or be drafted any different than a 401(k) plan for a private sector employer. Perhaps any references to 5% owners could be deleted.

It appears that someone who is age 50 or older with this type of an employer could have the best of both worlds -- a 401(k) plan, with a catch up contribution, and a 457(B) plan with a catch up contribution, plus the ability to do rollovers to and from the 457(B) plan. (In theory, in 2006, that person could have a total of $75,000 contributed between the 401(k) and the 457 -- assuming no change in the 415 limit.) Do you agree?

[lkpittman]

Hi Davef--thanks for responding. I've drafted the plan and the atty is reviewing it. I've deleted all the ERISA Title I requirements, as well as the nondiscrimination, coverage, vesting, etc. Code requirements that are not applicable to gov't plans, much the same way I would do for a Pension or straight PSP for gov't entity. We'll see how it flies.

I haven't thought too much about the overall contribution when combined with 457--the entity we have currently has a Pension Plan in place only. Seems your conclusions may be right?

[davef]

Even though gov't plans are technically not subject to those rules you mentioned, do you gain much in a 401(k) plan if you don't include them in the plan? Are there HCEs?