457 Gov't Plan - Changes in IRC

[Guest David Jamieson]

Ten years ago county government adopted a 457 deferred compensation plan prepared by a variable annuity life insurance company and also entered into a annuity contract with the company to allow employees to make contributions from wages/salary to fund the program. Pursuant to then existing Internal Revenue Code provisions, the plan expressly provided that the county is the owner and beneficiary of the annuity contract (even though all the contributions are made from employees' wages/salaries) and that the annuity contract is held as a general unrestricted asset of the county available to the county's general creditors. In 1996 (P.L. 104-88) and 1997 (P.L. 105-34) the Internal Revenue Code was amended to require government employer 457 plans to be held in trust for the benefit of employees and not be available to the government employer's general creditors. Additionally, the plan established a $7,500 annual contribution maximum which has now been increased to $8,000 and is tied to an index. Is there a checklist somewhere (other than the Internal Revenue Code and regs) to indicate the specific changes the government employer needs to make in the 457 deferred compensation plan set up by the insurance company ten years ago and also what changes, if any, that need to be made in the annuity contract with the insurance company to insure that the plan will continue to be a tax deferred eligible plan?

[Guest Ralph Amadio]

The basic change necessary to the annuity contract is in what used to be the "ownership" provision. The annuity contract, at least in my state, falls under the trust equivalence rule, so simply needs to state that the plan if for " the exclusive benefit of employees" and name the plan sponsor/governing board/ retirement committee, etc. as contract owner, as is determined by Agency Legal counsel. Please check local(state) laws to see if there is conflicting legislation

[Guest JCG]

Also, see Rev Proc 98-41 for SBJPA requirement.

[Guest CVCalhoun]

As you've already noticed, there is now an article which discusses all of your questions, which can be reached by clicking here.