June 14, 2004 – The IRS issues Rev. Rul. 2004-57, holding that a deferred compensation plan does not fail to be an eligible governmental plan under Code section 457(b) merely because the plan is created, offered, and administered by a union, provided adoption of the plan meets certain criteria.
In Rev. Rul. 2004-57, a State maintained an eligible governmental 457(b) plan available to employees of the State and employees of any political subdivision of the State, including both unionized and non-unionized public safety employees and civilians.
A union representing professional firefighters who were employed by various city, municipal, and other local governments within the State pursuant to collective bargaining agreements between the union and the governmental employers wanted to establish a second 457(b) plan available only to members of the collective bargaining units represented by the union who were employed by the governmental employers. The union is a Code section 501(c)(5) tax-exempt entity.
The IRS discussed the different rules which apply to 457(b) plans depending on whether the entity establishing and maintaining the plan is a tax-exempt entity or a State government entity. One of the differences is that a union, as a tax-exempt entity, may establish and maintain an eligible 457(b) plan but only if the plan is unfunded and is for its employees or other individuals who perform services for the union. A State, including an agency or instrumentality thereof, may establish and maintain an eligible 457(b), but only if it is funded and only for employees of the State or other individuals who perform services for the State.
In Rev. Rul. 2004-57, the IRS says that an eligible governmental employer may adopt, for its collectively bargained employees, a plan created by the union for employees of the governmental employer and offered and administered by the union, provided that the plan is established and maintained by the governmental employer and the union is simply acting as an administrator of the plan for the governmental employer.
Also on June 14, 2004, the IRS issued Announcement 2004-52 containing instructions for 457(b) plans which were established before June 14, 2004, and do not satisfy the requirements of Rev. Rul. 2004-57 solely as a result of being established and maintained by a labor organization instead of being established and maintained by an eligible governmental employer but still wish to be treated as if they were established and maintained by an eligible governmental employer.
March 23, 2009 – The IRS issues Final Regulations on Automatic Contribution Arrangements. Section 902 of the Pension Protection Act of 2006 (PPA ’06) added Code section 401(k)(13), 401(m)(12) and 414(w), providing for automatic enrollment in 401(k), 403(b) and 457(b) plans, including Qualified Automatic Contribution Arrangements (QACA) and Eligible Automatic Contribution Arrangements (EACA). Section 109(b) of the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) subsequently modified some of the provisions contained in PPA ’06 on automatic contribution arrangements. These regulations contain guidance on how plan sponsors implement automatic contribution arrangements and when employees must be notified.
Earlier this year, I posted about a provision contained in one of the 13 appropriate bills which would permit 457(b) plans to include a qualified Roth contribution program.
H.R. 2419, also known as the Food and Energy Security Act of 2007, commonly known as the Farm Bill, contains Section 12512, which is “Participants in government section 457 plans allowed to treat elective deferrals as Roth contributions”. That section states:
(a) In General. Section 402A(e)(1) (defining applicable retirement plan) is amended by striking “and” at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting “, and”, and by adding at the end the following:
“(C) an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).”.
(b) Elective Deferrals. Section 402A(e)(2) (defining elective deferral) is amended to read as follows:
“(2) Elective Deferral. The term “elective deferral” means –
“(A) any elective deferral described in sub-paragraph (A) or (C) of section 402(g)(3), and
“(B) any elective deferral of compensation by an individual under an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).”.
(c) Effective Date. The amendments made by this section shall apply to taxable years beginning after December 31, 2007.
The Farm Bill was approved by the Senate on December 14, 2007, and is headed to conference committee to reconcile the difference between the House and Senate versions of the bill.
[tags]Pension Protection Act, ppa, roth, 457(b), ERISA[/tags]
Every year, Congress creates and passes the 13 appropriation bills which fund the entire government for the upcoming year. Tucked inside those appropriation bills are more than just government spending provisions.
This year, a provision about to be included within one of the appropriations bills, is the American Infrastructure Investment and Improvement Act. Included within this provision is authorization to permit 457(b) plans to include a qualified Roth contribution program, effective for taxable years beginning after December 31, 2007. Under such a program, participants would be permitted to designate elective deferrals as Roth contributions.
457(b) plans are maintained by State or local governments, or tax-exempt organizations and which meet certain requirements, such as limits on the maximum amounts which can be deferred.
The Joint Committee on Taxation prepared a short summary of the provision in the Markup to the Senate Finance Committee of the Chairman’s Modification to this bill.
[tags]Pension Protection Act, ppa, 457(b), roth, American Infrastructure, appropriations, ERISA[/tags]