Federal Credit Unions and 457

[Guest George Chimento]

PLR 200430013 takes the position that federal credit unions are instrumentalities of the US government, and that their deferred compensation programs are accordingly not regulated by IRC 457.

IRS takes the position in the PLR that it will not take a position on applicable law. (It is apparently troubled by the "loophole.")

So, what's going on, and what do you do if you represent a federal credit union ? The last item on the list of employee benefit projects for IRS "priority guidance" is "guidance under Code Sec. 457(b) and Code Sec. 501©(1) on plans established by federal credit unions."

Unless legislation is enacted, it seems pretty clear (to me, at least) that 457 does not apply to federal credit unions and that 409A (issued after the PLR) probably does, although I suspect that Congress probably did not intend 409A to apply to federal instrumentalities, so even that is iffy.

Is it possible that federal credit unions simply need to operate deferred compensation plans according to pre-409A and pre-457 law?

George Chimento

[davef]

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

[Guest George Chimento]

davef,

That is a very reassuring link.

I am delighted. I had advised my client to establish a large defined benefit plan with a vested past service accrued benefit exceeding 457(b) limits asap, before the rules change. There just seems no way that the IRS can retroactively hamstring a federal credit union with the 457 limitations.

The issue of sovereign immunity comes up in litigation against federal credit unions, so this IRS position is consistent with that.

I am comfortable that corrective legislation would be required in order to extend 457 to federal credit unions.

George

[GBurns]

You might also want to read some of these:

http://benefitslink.com/boards/index.php?showtopic=25522