Jump to content
Sign in to follow this  
Guest Sierra

And Old Story

Recommended Posts

Guest Sierra

Back in 2004 I posted on these boards a copy of a Revenue Ruling that permits unions to operate 457(b) Plans. Consolidation is the key!

 

Joel

====================================================================

Below is the Ruling in its entirety. This is great, great news! It gives the unions the opportunity to design a plan that is unique to their members needs, desires and asperations. They no longer need a for profit insurance company to partner with. They could run the entire show. If they so choose they could have the same type of plan as the Florida Retirement System Investment Plan for about 40 basis points. But then again the ees can be hurt if their unions see an opportunity to endorse a VA provider for a fee. It will be interesting to see how the unions use this new Revenue Ruling.

 

Peace,

Joel

==============================================

 

1

Part I

Section 457.--Deferred Compensation Plans of State and Local Governments and Taxexempt

Organizations

26 CFR 1.457-2: Definitions.

Rev. Rul. 2004-57

ISSUE

Does a plan fail to be an eligible governmental plan under § 457(b) of the Internal

Revenue Code solely because the plan is offered and administered by a labor union for

the benefit of those State employees who are union members?

FACTS

An organization (including its local affiliates) that is a labor organization described

in § 501©(5) (Union) represents professional firefighters employed by various city,

municipal, and other local governments in State ###### (“Governmental Employers”) under

collective bargaining agreements between the Union and the Governmental Employers.

State ###### maintains an eligible governmental § 457(b) plan (Plan A). Plan A is

available to employees of State ###### and employees of any political subdivision of State ######,

including both unionized and non-unionized public safety employees and civilians.

The Union would like to offer an additional eligible governmental § 457(b) plan

(Plan B) that is available only to members of the collective bargaining units represented

by the Union who are employed by the Governmental Employers

Under Plan B, the members of the Union who are employees of the

Governmental Employers that adopt Plan B are eligible to participate and elect to have

the Governmental Employers make contributions on their behalf to Plan B out of their

compensation from the Governmental Employers. Plan B states that the plan is

established and maintained by the Governmental Employers and participants are

informed of this. Only investments approved by the Union are offered under Plan B and

amounts deferred by employees of Governmental Employers that adopt Plan B, plus

any amounts transferred directly from any other eligible governmental § 457(b) plan,

provide Plan B’s exclusive source of funding.

Union members employed by Governmental Employers that do not adopt Plan B

are not eligible to participate in Plan B, and no contributions may be made on their

2

behalf regardless of whether their Governmental Employer is part of any collective

bargaining agreement with the Union or its affiliates and regardless of whether the

employees are union members. Employees of the Union are not eligible to participate

in Plan B.

Plan B provides that all annual deferrals for a participant under the plan are

combined with the participant’s annual deferrals under Plan A and all other eligible plans

of the same employer for purposes of the Plan B limitations designed to comply with the

limitations of § 457(b), and are combined with annual deferrals under eligible plans of

other employers to the extent information concerning such plans is provided by the

participant. Thus, Plan B treats all deferrals under all eligible plans in which an

individual participates by virtue of his or her relationship with a single employer as a

single plan for purposes of determining whether deferrals in excess of the § 457(b)

limitations have been made.

Because both Plan A and Plan B must comply with these limitations, they each

include terms providing for correction of any excess deferrals under all plans. Plan B

provides that if an excess deferral arises which is only an excess amount as a result of

the combined annual deferrals under both Plan A and Plan B, then the excess amount

will be corrected by Plan B (even though there would be no excess if only annual

deferrals under Plan B were taken into account). By adoption of Plan B, each

Governmental Employer agrees not only to forward payroll amounts representing

annual deferrals under Plan B, but also to inform Plan B of the amount of the annual

deferrals made under Plan A by participants in Plan A who also participate in Plan B

and such other information known to the Governmental Employers as Plan B may need

for proper administration. The adoption agreement also requires the Union to provide to

the Governmental Employers such information from Plan B as the Governmental

Employers may need to complete tax returns for their employees and to administer Plan

A.

In addition, for purposes of Plan B’s special catch-up contribution rules for

participants who are within the three-year period ending before the year they reach

normal retirement age, Plan B provides a normal retirement age which is the same as

the normal retirement age under Plan A. Further, Plan B permits a plan-to-plan transfer

of assets from Plan A (or any other eligible governmental plan) to Plan B for employees

who have not had a separation from employment only if the following conditions are

satisfied: (i) the transfer is from Plan A or any other plan that is an eligible governmental

plan of State ######; (ii) the transferring plan provides for the transfer; (iii) the participant

whose deferred amounts are being transferred is performing services for a

Governmental Employer that has adopted Plan B (and, for this purpose, Plan B treats

the employer as the same employer only if the participant’s compensation is paid by the

same entity); and (iv) the participant or beneficiary whose amounts deferred are being

transferred must have an amount deferred immediately after the transfer at least equal

to the amount deferred with respect to that participant or beneficiary immediately before

the transfer.

3

LAW AND ANALYSIS

Section 457 provides rules for the deferral of compensation by an individual

participating in an eligible deferred compensation plan as defined in § 457(b). Section

457(b)(1) provides that the term “eligible deferred compensation plan” means a plan

“established and maintained by an eligible employer” in which only individuals who

perform services for the employer may be participants. The performance of services

includes performance of services as an employee or as an independent contractor.

Section 457(e)(2).

Section 457(e)(1) defines an “eligible employer” as (A) a State, political

subdivision of a State, and any agency or instrumentality of a State or political

subdivision of a State and (B) any other organization (other than a governmental unit)

exempt under Subtitle A of the Internal Revenue Code. Section 1.457-2(e) of the

Income Tax Regulations further defines the term “eligible employer” as including an

entity that is a State that establishes a plan and § 1.457-2(l) provides that State means

a State (treating the District of Columbia as a State as provided under § 7701(a)(10)), a

political subdivision of a State, and any agency or instrumentality of a State.

Section 1.457-5(b) provides that for purposes of determining the amount of

annual deferrals under a § 457 plan that are excluded from a participant’s gross income

in any taxable year, the participant’s annual deferrals under all § 457 plans must be

determined on an aggregate basis. For example, under § 1.457-5, all annual deferrals

under all eligible plans (whether or not with the same employer) are combined for

purposes of determining whether the limitations of § 457(b) have been exceeded. In

this regard, § 1.457-4(e)(2) treats all deferrals under all eligible plans in which an

individual participates by virtue of his or her relationship with a single employer as a

single plan for purposes of determining excess deferrals.

Under § 1.457-10(b)(4), a plan-to-plan transfer from one eligible governmental

plan to another eligible governmental plan of the same employer is permitted without a

separation from employment if certain conditions are satisfied, including that the transfer

is from an eligible governmental plan to another eligible governmental plan of the same

employer (and, for this purpose, the employer is not treated as the same employer if the

participant’s compensation is paid by a different entity).

Section 457(g) provides that a plan maintained by an eligible governmental

employer is not to be treated as an eligible deferred compensation plan unless all

amounts of compensation deferred under the plan, all property and rights purchased

with such deferred compensation amounts, and all income attributable to such amounts,

property, or rights of the plan are held in trust for the exclusive benefit of participants

and their beneficiaries. In order to be an eligible plan of a tax-exempt entity, § 457(b)(6)

provides that the plan must be unfunded and plan assets must not be set aside for

participants or their beneficiaries.

4

An arrangement does not fail to constitute a single eligible governmental plan for

purposes of § 457(b) merely because the arrangement is funded through more than one

trustee, custodian, or insurance carrier. See § 1.457-8 of the regulations and Notice 98-

8, 1998-1 C.B. 355.

Under § 457, therefore, different rules apply depending on whether the entity

establishing and maintaining the plan is a tax-exempt entity or a State government

entity. A union that is 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) plan, but only if

it is funded and only for employees of the State or other individuals who perform

services for the State. A union may not establish and maintain a funded plan for its

employees or for individuals who do not perform services for the union. However, 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. Thus, if the plan is established and maintained by a

governmental employer, it can qualify as an eligible governmental § 457(b) plan,

assuming that the plan satisfies all of the other requirements of § 457(b).

If the governmental employer has adopted the plan in a manner that reflects the

employer as having established and maintained the plan, a plan does not fail to be an

"eligible governmental § 457(b) plan" merely because the plan is created, offered and

administered by a union even if it is in addition to another plan that is offered and

administered by the governmental employer.

Under these facts, Plan B includes special provisions designed to comply with

the rules for eligible governmental § 457 plans of the same employer, including

coordination of limitations and corrections under § 1.457-5 and plan-to-plan transfer

provisions that comply with § 1.457-10(b)(4). These facts are consistent with the plan

being established and maintained by the Governmental Employers. The Union’s

involvement in administering the plan to be offered to employees of the Governmental

Employers, such as coordinating the information necessary to determine whether any

excess contributions are made for a participant and responsibility in providing

information necessary for completing wage statements that reflect Plan B, is

comparable to the involvement associated with a third party administrator who invests

annual deferrals and administers the plan provisions for the employer. In this case, the

Union is in effect administering Plan B for the Governmental Employers, as a plan that

is established and maintained by the Governmental Employers as the actual employers

of the union members.

HOLDING

Plan B does not fail to be an eligible governmental plan under § 457(b) solely

5

because the plan is offered and administered by the Union, but only with respect to

employees of the Governmental Employers that have adopted Plan B as described in

these facts.

For § 457(b) plans that do not satisfy the requirements of this revenue ruling see

Announcement 2004-52, page ___.

DRAFTING INFORMATION

The principal author of this revenue ruling is Vernon S. Carter of the Office of the

Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For

further information regarding this revenue ruling contact Vernon S. Carter on (202) 622-

6060 (not a toll-free call).

 

 

 

 

Share this post


Link to post
Share on other sites
Guest Skeptical

Joel,

 

Has any union organization taken the opportunity to establish a 457 plan for it's members?

 

Jim

 

 

Share this post


Link to post
Share on other sites
Guest Sierra

Joel,

 

Has any union organization taken the opportunity to establish a 457 plan for it's members?

 

Jim

 

 

Jim,

 

I don't know. The National Association of Government Defined Contribution plans should know. I'll get a call into them and then get back with an answer.

 

Joel

 

Share this post


Link to post
Share on other sites
Guest Sierra

 

Joel,

 

Has any union organization taken the opportunity to establish a 457 plan for it's members?

 

Jim

 

 

Jim,

 

I don't know. The National Association of Government Defined Contribution plans should know. I'll get a call into them and then get back with an answer.

 

Joel

 

 

Jim and all;

 

NAGDCP does not 'encourage' questions from non-members...no email address/toll free number.

 

So, I placed a call with the RC ICMA and spoke with a person who promised to get back to me. Will report when she does.

 

Joel

 

Share this post


Link to post
Share on other sites
Guest Skeptical

Joel,

 

I found a 457B plan with the Fraternal Order of Police Union. The communication piece was directed at the locals and mentioned that promoting the plan would generate $$ for the locals. Red flag for me. The plan provider is RC ICMA.

 

Cheers,

 

Jim

 

 

Share this post


Link to post
Share on other sites
Guest Sierra

Joel,

 

I found a 457B plan with the Fraternal Order of Police Union. The communication piece was directed at the locals and mentioned that promoting the plan would generate $$ for the locals. Red flag for me. The plan provider is RC ICMA.

 

Cheers,

 

Jim

 

 

Just got off the phone with a lady from RC---she informed be that 457(b) plans run by unions have not taken off---probably because the public employers feel it would be relinquishing control while still being held to trustee/fiduciary standards.

 

Best,

Joel

 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

×
×
  • Create New...