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.
