Small Quasi Govt 457b

[austin3515]

Trying to help an acquaintance find a cheap option for opening a 457b for a tiny quasi-government agency.  Anyone have any ideas?

[Peter Gulia]

Is the employer a State, a State’s political subdivision (for example, a county, city, town, village, borough, or other municipality), a State’s agency, a State’s instrumentality, or a political subdivision’s agency or instrumentality? [I.R.C. § 457(e)(1)(A)]

Or, is the employer a tax-exempt organization (other than a governmental unit)? [I.R.C. § 457(e)(1)(B)]

Some service providers have capabilities for one kind or the other, but not for both.

[austin3515]

Tax exempt agency, created by a state statute.

[Peter Gulia]

That alone doesn’t resolve the classification question.

That a State’s statute created an organization does not by itself mean the organization is a government’s agency or instrumentality. And that an organization is distinct from the State or a political subdivision does not by itself mean the organization isn’t a government’s agency or instrumentality.

To discern this, one would read the creating or enabling statute and other law to consider the organization’s powers and other facts and circumstances. And would consider how these relate to IRS interpretations about what is or isn’t a government’s agency or instrumentality.

This is not advice to anyone.

If the organization’s executive is unsure about whether the organization is governmental, your acquaintance might consider reaching out to Empower or Voya. While each would deny that it provides tax or other legal advice, either has inside lawyers and other businesspeople with knowledge and practical experience to help sort out whether an employer is § 457(e)(1)(A) or § 457(e)(1)(B).

Another way to get some partial information about governmental or not is to ask whether the organization is required or permitted to participate to participate in a State employees’ retirement system.

Or, if the State maintains a § 457(b) plan that admits governmental employers beyond the State itself, ask that plan’s executive or service provider whether the plan would admit the organization as a participating employer. That plan’s counsel, inside or outside, might do the legal analysis.

Consider also that a State’s § 457(b) plan might have purchasing power a “tiny” organization lacks. (In my 42 years’ experience with governmental plans, I’ve seen many super-micro employers’ workers enjoy pricing that can be had only with a mega plan’s purchasing power.)

Alternatively, being denied participation under a State’s plan might be a partial clue that the organization might not be governmental.

[austin3515]

Maybe you can give me the name of one of each. Perhaps they have the requisite expertise to talk to them.

[Peter Gulia]

Unless a plan sponsor’s consultant is such a big player in the recordkeeper’s business that the firm gets special access (my firm doesn't have that pull with either Empower or Voya), an inside lawyer or other expert won’t take a call not introduced by a sales executive (or an existing customer's relationship manager).

So, one would start with the recordkeeper's sales manager for the plan sponsor’s region.

One way to get a salesperson to bump a question to the expert is to say, quickly, that you want to not waste the salesperson’s time and effort on a prospect that couldn’t pan out. For example, a salesperson shouldn’t waste her time on a government-sector proposal if the prospect might be nongovernmental and the recordkeeper does not offer services for a small organization’s even smaller select-group § 457(b) plan. Or, even if the recordkeeper has capabilities and offers for both business lines, a proposal is generated from or for a particular business line. So, it might be in a salesperson's interest to get help on a classification question.

[austin3515]

Voya is actually the only one I reached out to so far 👍 Hopefully they will come through for us!