Model Amendments

[Guest dietpepsi]

Questions regarding the 457 model amendments.

I am wondering how literally everyone is taking the 457 model amendments. Is everyone using the model amendments word for word? For example, I have the following questions and am wondering how others in the industry are writing their plans.

1. Is it really necessary to define an Employee as a natural person, whether appointed or elected, employed by the Employer as a common law employee? The list of required modifications for master and prototype plans defines an Employee as any employee of the Employer. Wouldn’t employee normally be interpreted to mean a natural person employed as a common law employee?

2. We have plans that cover independent contractors. No wording is provided in the model amendments. Is anyone else including independent contractors?

3. We have plans that provide for nonelective contributions. These contributions count towards the maximum deferral limit but are accounted for separatly in the plan document. Does anybody else write plan documents that allow for nonelective contributions? Are you concerned that the model amendment did not address?

4. Why was Includible Compensation changed to include the compensation limit under section 401(a)(17) of the Code? Should the definition say that it is determined without regard to any community property laws?

5. Does Compensation have to be cash compensation?

6. Why do the model amendments not include provisions for termination of the plan when the final regulations did allow for it?

7. The model loan provisions specify an interest rate 1% above the prime rate as published in a plan-specified nationally recognized newspaper. Do you feel that the plan has to specify the interest rate to be used or could the plan simply state that a reasonable rate of interest would be applied? The list of required modifications for master and prototype plans allows those plans to just state that a reasonable rate of interest will apply.

8. While the loan provisions seem to follow the loan rules applicable to qualified plans, there are two provisions regarding participants who have defaulted on a loan that do not follow the qualified rules. The first is the limitation on contributions prior to the first payroll period that follows by 12 months the date of repayment in full. The second is the limitation on new loans for participants who have previously defaulted. Are these required, and if so, why are the requirements for a 457 plan more restrictive than the requirements for a qualified plan?

9. Since contributions to an unrelated 457(b) plan which cause the participant to exceed the 457 plan contribution limitations will not cause the plan to lose its tax-favored status, why are the participants required to provide the plan administrator notice about their participation in other 457(b) plans? Why were the model amendments not written like the qualified plans where the participant has to claim an excess if it results from participation in an unrelated plan? Should the model amendments have included wording to say what would be considered a plan maintained by the Employer?

10. If the plan provides for distributions to be made in the form of an annuity, what wording would be needed to satisfy section 401(a)(9) of the Code?

11. Does a plan actually have to say that separate accounts will be established for multiple beneficiaries? Or was this wording in the plan to simplify the wording needed to comply with section 401(a)(9) of the Code?

12. What is the latest date permitted under § 457(b) for the required provisions? If the plan had loan provisions that appeared to meet the requirements of the regulations but didn’t have the limitations for those who defaulted, could the effective date for those provisions be a current date? What would be the latest date permitted? Could the plan be restated as of the first plan year beginning after December 31, 2001 but include wording saying that some provisions are effective as of a later date?

Thanks!

[Guest dietpepsi]

Doesn't anyone else think the IRS was trying to legislate through model amendments? Is it anywhere in the code or final regs that a person can't take another loan or make contributions for a year if they default on a loan? Is it anywhere in the code or final regulations that the only reasonable rate of interest on a loan is prime + 1%? I can't find it.

Thanks

[mbozek]

No one is required to adopt the model language- plans need only conform to the requirement of 457 and the regs. The loan provision only applies to govt plans who have 6 months after being notified by the IRS to correct plan language which is insufficient. Why not draft your own provisions?