Can a government entity sponsor a profit-sharing plan?

[Guest HKT]

Can a government entity or employer sponsor a discretionary profit-sharing plan? If so, under what authority?

There's a government employer who currently sponsors a pension plan. The employer would like to adopt a profit-sharing plan instead of the pension plan.

Any advice is appreciated. Thanks.

[jpod]

For purposes of the tax-qualification requirements of the Internal Revenue Code, a gov'tal employer can sponsor a profit sharing plan. Is it a problem under any other law(s)? That depends on the gov'tal employer involved and the applicable state laws regulating the affairs of that employer.

[Guest HKT]

The government employer performs a small, unique function. We haven't look at any applicable state laws yet. I was also hoping to find more authority or resources discussing or confirming whether a government entity can sponsor a profit-sharing plan with respect to IRC section 401(a)(27). The provision is silent regarding government employers and entities specifically, so I wanted more assurance or confirmation.

[david rigby]

The following website leaves a lot to be desired both visually and organizationally, but it has very good content.

http://www.benefitsattorney.com

Go to the drop down menu, scroll down to Charts and select "Choosing Among 401(k), 403(B), and 457(B) Plans".

[mbozek]

Sometimes the obvious is hard to find. Govt employers can establish a qualfied plan under IRC 401(a) the same as any other employer. Under the IRC an employer is not required to have profits in order to make contributions to a ps plan. The difference between a ps plan and MP plan is that an employer can elect to make discretionary contributions under a ps plan. The reason for the silence is that the IRC only states what is not permitted, not what is permitted. The problem is that many people look for citiations of authority for provisions which are not impermissable rather than conclude that what is not impermissible is permitted. You should review the instructions for a 5300 form which a govt employer can file to obtain a determination letter for a qualified plan.