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grandfathered 401(k) govt plan

Tom Poje

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good grief. people must think I am old enough to know these things. I have never even seen one of these animals.

anyway, someone is working on restating a 401(k) plan sponsored by the govt which has been granfathered forever.

does such plan require ADP language or were they exempt from testing as well (since govt plans usually have all type of special rules, I have no clue)


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Generally, no. But your answer will actually depend on what type of governmental plan you have. Is this a state or local governmental plan? Or, is it some other sort of governmental plan (e.g., federal)? If the former, the IRS published a final moratorium in 1997 for these plans (stating that these plans are exempt from 401(a)(4) and 401(k)). See 401(a)(5)(G) for the (a)(4) exclusion. See Section 401(k)(3)(G) for the ADP exclusion.

With respect to the latter, the IRS keeps publishing moratoriums on the 401(a)(4), 410, 401(k), etc. testing, but has not completely exempted them. Notice 2001-46 provides you with the necessary information. It was my understanding that these plans were SUPPOSED to be exempted, just like their state and local counterparts, but that the actual language got dropped at the 11th hour!!!! Very frustrating as I have a federal governmental plan as a client that would really like to know once and for sure that these requirements do not apply!!!!! :mad:

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Just a bit of background on the possible exemption of governmental plans other than plans of state and local governments. The provision that would have exempted all governmental plans was in both the House and Senate versions of EGTRRA. There was no meaningful opposition to it in either the House or Senate. The reason that it was dropped is that a technical objection was made that a revenue bill (which EGTRRA was) could not include provisions, such as this one, that did not affect revenues. However, given that the provision is considered noncontroversial, IRS and the Treasury Department have been delaying the effective date of nondiscrimination rules for all governmental plans. Informal statements by relevant employees have suggested that these delays are based on the belief that the issue may well be made moot by future legislation.

Employee benefits legal resource site

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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