Can a governmental 457b plan be terminated?

[Guest Clain]

The employer (county owned hospital) is changing from a governmental entity to a 501c3, and as a result can't continue to use the governmental 457b plan. Can this plan be terminated and employees given the option of rolling over their funds to an IRA or the new 401k/403b arrangement, or must the employer freeze the plan and only pay out benefits when a reason for distribution is met?

[Peter Gulia]

Although these are not the only choices, the practical options are:

transfer the 457(b) plan's assets and liabilities to another 457(b) plan that is maintained by an eligible State or local government employer "within the same State", or

amend the 457(b) plan to conform to then-current IRC 457(b) at the termination time, and provide for and pay or deliver a prompt final distribution to every participant, beneficiary, and alternate payee.

See 26 C.F.R. 1.457-10(a)(2).

State and local law might impose further conditions.

[Guest mjb]

Q Is the countly spinning off the hospital as a separate legal entity that will be a non profit under the control of an independent board or will the county now operate the Hospital as a 501©(3)? If the county operates the hospital as a c3 it could still be a govt entity eligible for got 457(b) plan.

[J Simmons]

mjb,

I am interested in your comment

If the county operates the hospital as a c3 it could still be a govt entity eligible for got 457(b) plan.

Could you elaborate on that one, with any cites you might have?

Does there have to be a legally binding obligation between the county's taxing authority and geographical election characteristics, on the one hand, and the c3 hospital's financial obligations, on the other, to imbue the c3 hospital with governmental entity status?

[Guest Getearl]

As a special service to government entities, IRS will issue a “government affirmation letter”

free of charge. You may request this letter by calling the IRS Tax Exempt/Government Entity

Cincinnati Call Site at 1-877-829-5500.