457 employer match

[cpc0506]

A client has come to us with a 457 plan. The client is a township government office. They tell us that their 457 document was written to give an Employer Match to any employee who makes employee contributions to a 529 plan. The rate of match is 50% of the first 8% of employee contribution. The match is calculated based upon the total employee contributions to both the 457 plan and the 529 plan. Is this allowed? Has anyone ever come across this issue before?

Thanks for your input.

[Peter Gulia]

A township of which State? State laws vary widely concerning whether a contribution beyond elective salary-reduction deferrals is permitted or precluded.

Did your client explain anything about why it wants a matching contribution to a retirement plan to relate to a contribution to a plan that, at least in form, states its purpose as higher education?

[cpc0506]

A township of which State? State laws vary widely concerning whether a contribution beyond elective salary-reduction deferrals is permitted or precluded.

Did your client explain anything about why it wants a matching contribution to a retirement plan to relate to a contribution to a plan that, at least in form, states its purpose as higher education?

The township is in the state of PA. All the adminstrator said was that we match contributions made into the Township's 457 Plan and the Township sponsored 529 College Savings Plan. And that is what is written into the document. Does this information help in rendering an opinion? Thanks.

[Peter Gulia]

Concening a Pennsylvania political subdivision's power to provide deferred compensation, the relevant statute is at 72 P.S. § 4521.1 to -.4. For a free version, http://weblinks.westlaw.com/result/default...TC&vr=2%2E0.

The township should want the advice of its regular and expert lawyers about possible constructions and interpretations of the statute.

Remember that a political subdivision's act that exceeds the power that the State granted to the political subdivision is void.

Please feel free to call me if you're interested in my views.

[mbozek]

A client has come to us with a 457 plan. The client is a township government office. They tell us that their 457 document was written to give an Employer Match to any employee who makes employee contributions to a 529 plan. The rate of match is 50% of the first 8% of employee contribution. The match is calculated based upon the total employee contributions to both the 457 plan and the 529 plan. Is this allowed? Has anyone ever come across this issue before?

Thanks for your input.

What is the issue? Government 457 plan are not subject to any nondiscrimination rules under the IRC. Have you checked with counsel for the town regarding application of state or local laws. I am sure the plan was adopted pursuant some local ordinance or rule.

[Peter Gulia]

Matt, at least one of Kathy Moran's questions concerns whether the township has power to pay a contribution beyond those elected as a salary reduction. It's a serious question because a State's law might not empower a municipality to provide a matching or nonelective contribution. A political subdivision has only as much power as the State granted. (In more than a quarter-century of working with governmental deferred compensation plans, I've seen many that were void.) Although in an ideal world a municipality would check State and local law before doing a new act, it's not unheard of for a municipal official to neglect asking for a lawyer's advice.

[mbozek]

Matt, at least one of Kathy Moran's questions concerns whether the township has power to pay a contribution beyond those elected as a salary reduction. It's a serious question because a State's law might not empower a municipality to provide a matching or nonelective contribution. A political subdivision has only as much power as the State granted. (In more than a quarter-century of working with governmental deferred compensation plans, I've seen many that were void.) Although in an ideal world a municipality would check State and local law before doing a new act, it's not unheard of for a municipal official to neglect asking for a lawyer's advice.

As noted in my response noting that she should check with counsel regarding the application of state and local laws, isnt the application of state and local laws so as to permit employer contributions to the plan a question that needs to be referred to counsel for the town? The remainder of your response is redundent.

[cpc0506]

Concening a Pennsylvania political subdivision's power to provide deferred compensation, the relevant statute is at 72 P.S. § 4521.1 to -.4. For a free version, http://weblinks.westlaw.com/result/default...TC&vr=2%2E0.

The township should want the advice of its regular and expert lawyers about possible constructions and interpretations of the statute.

Remember that a political subdivision's act that exceeds the power that the State granted to the political subdivision is void.

Please feel free to call me if you're interested in my views.

Peter, thank you for your response. However I could not access the website you provided as a link for information as to the relevant statute. Any other suggestions?

[Peter Gulia]

The link is to the public version of unannotated Pennsylvania Statutes that West Publishing provides for free under its contract with the Commonwealth. But some computers and Internet browsers block it as a potential security threat unless you revise your security settings to allow cookies and treat Westlaw sites as trusted.

If that's inconvenient or ineffective, the attached .doc files are downloads from that site.

The annotated Lexis or Westlaw editions don't provide much more.

72_PS_4521_1.doc

72_PS_4521_2.doc

72_PS_4521_3.doc

72_PS_4521_4.doc