Internal Revenue Bulletin: 2004-35
August 30, 2004
Table of Contents
- SECTION 1. PURPOSE
- SECTION 2. BACKGROUND AND GENERAL INFORMATION
- SECTION 3. USE OF THE MODEL AMENDMENTS
- SECTION 4. RELIANCE BY EMPLOYERS ON MODEL AMENDMENTS
- SECTION 5. DATE AMENDMENTS ARE ADOPTED
- SECTION 6. AREAS NOT COVERED BY THIS REVENUE PROCEDURE
- SECTION 7. EFFECT ON OTHER DOCUMENTS
- SECTION 8. COMMENTS REQUESTED
- SECTION 9. PAPERWORK REDUCTION ACT
- DRAFTING INFORMATION
This Revenue Procedure provides model amendments that may be used by a State or local government eligible employer (as defined in § 457(e)(1)(A) of the Internal Revenue Code) to amend or draft its eligible § 457(b) plan to reflect the requirements of § 457 and the regulations thereunder.
.01 Section 457 applies to nonqualified deferred compensation plans established by State and local government and tax-exempt employers. Under § 457, eligible employers may establish three different types of plans or arrangements: (1) eligible plans established by State and local government entities (eligible § 457(b) governmental plans); (2) eligible plans established by other tax-exempt entities (eligible § 457(b) plans of tax-exempt entities); and (3) ineligible plans under § 457(f). Under the last sentence of § 457(b), the Commissioner may notify an eligible § 457(b) governmental plan that it is administered in a manner that is inconsistent with § 457(b).
.02 Final regulations under § 457 (T.D. 9075, 2003-39 I.R.B 608) were published in the Federal Register (68 FR 41230) on July 11, 2003. These regulations replaced existing final regulations that were published in the Federal Register on September 27, 1982 (47 FR 42335) (T.D.7836, 1982-2 C.B. 91). The final regulations provide guidance for complying with the changes made to § 457 by the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16 (EGTRRA), the Taxpayer Relief Act of 1997, Pub. L. No. 105-34 (TRA ’97), and the Small Business Job Protection Act of 1996, Pub. L. No. 104-188 (SBJPA). The regulations also provide guidance on many non-EGTRRA issues, such as the tax treatment of excess deferrals, plan loans, plan terminations, and unforeseeable emergencies.
.03 Sections 615, 631, 632, 634, 635, 641, 646, 647, and 649 of EGTRRA made changes to eligible § 457(b) governmental plans, including increases in elective deferral limits, repeal of the rules coordinating the § 457 plan limits with contributions to certain other types of plans, catch-up contributions for individuals age 50 or over, extension of qualified domestic relation order rules to § 457 plans, rollovers to and from various types of eligible retirement plans, § 403(b) contracts and individual retirement arrangements (IRAs), and transfers to purchase permissive service credits under governmental defined benefit plans.
.04Rev. Proc. 98-41, 1998-2 C.B. 135, provided model amendments that may be used for eligible § 457(b) governmental plans to reflect the revisions made to § 457 by the SBJPA, including the requirement that eligible § 457(b) governmental plans hold all assets and income in trust for the exclusive benefit of participants and beneficiaries.
Any State or local government employer may amend its eligible § 457(b) defined contribution governmental plan to comply with one or more of the changes made to § 457 by the SBJPA, TRA ’97, EGTRRA, and the regulations issued under § 457 by adopting one or more of the Model Amendments contained in the Appendix to this revenue procedure. With respect to the benefit provisions relating to each of the Model Amendments, the Model Amendments have been prepared to conform with the applicable § 457(b) requirements, taking into account the general requirement that an eligible plan must include all of the material terms and conditions for benefits under the plan. For example, the Model Amendments do not incorporate the applicable legal requirements by reference, but instead describe those requirements in a manner intended to enable the plan administrator to implement the plan provisions on the basis of the language of the Model Amendments to the extent feasible.
The regulations provide that an eligible § 457(b) governmental plan may contain certain optional features not required for plan eligibility under § 457(b), such as in service distributions from rollover accounts, distributions for unforeseeable emergencies, loans, plan to plan transfers, and distributions of smaller accounts to eligible participants. Accordingly, these Model Amendments contain optional as well as required provisions that may be used in adopting an eligible § 457(b) governmental plan. However, if the optional provisions are used, the optional provisions must meet, in both form and operation, the relevant requirements under the Code and the regulations, as well as operate in accordance with the terms of the plan.
If an eligible governmental employer adopts one or more of these Model Amendments for its plan that is intended to be an eligible § 457(b) governmental plan, the plan will be treated as meeting the plan requirements for eligibility under § 457(b) with respect to these provisions. An employer may adopt the applicable Model Amendment provided in this revenue procedure on a word-for-word basis or adopt an Amendment that is substantially similar in all material respects. However, these Model Amendments are limited in scope. Therefore, use of the Model Amendments does not have the same status as a private letter ruling which provides that a plan is an eligible § 457(b) governmental plan. In addition, if an eligible governmental employer adopts one or more of the Model Amendments, the plan must be operated in accordance with the Model Amendments and must continue to satisfy in both form and operation any other requirements of § 457 in order to maintain eligibility. To the extent an employer’s plan does not include the Model Amendments or an amendment that is substantially similar in all respects, an eligible governmental employer who requests a private letter ruling from the IRS on plan eligibility under § 457 must clearly highlight and describe in the written request how its plan provisions differ from the Model Amendments.
Pursuant to this revenue procedure, for purposes of the last sentence of § 457(b), an eligible § 457(b) governmental plan will be treated as having adopted timely amendments to reflect the requirements of EGTRRA described in section 2.03 of this revenue procedure if the related Model Amendment, or any other amendment that satisfies that requirement, is adopted no later than December 31, 2005, the amendment is effective as of a date not later than the latest date permitted under § 457(b), and the operation of the plan since that date is not inconsistent with the amendment.
This revenue procedure does not apply to eligible § 457(b) plans of tax-exempt entities or ineligible plans under § 457(f).
Treasury and IRS are interested in receiving comments on the Model Amendments contained in this revenue procedure and any other Model Amendments that interested parties believe should be added to this revenue procedure. Comments should be sent to the following address: Internal Revenue Service, Attn: CC:DOM:CORP:R (Section 457 Plans), Room 5201, P. O. Box 7604, Ben Franklin Station, Washington, DC 20044. Written comments may be hand delivered Monday through Friday between 8 a.m. and 4 p.m. to: Internal Revenue Service, Courier’s Desk, Attn: CC:PA:RU (Section 457 Plans), 1111 Constitution Avenue, NW, Washington, DC 20224. Alternatively, written comments may be submitted electronically via the Internet by selecting the “Tax Regs” option on the IRS Home Page, or by submitting them directly to the IRS Internet site at http:/www.irs.gov/tax_regs/reglist.html. Comments should be received by November 30, 2004.
The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1904.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.
The collection of information in this revenue procedure is pursuant to § 457(b) of the Code and § 1.457-1 of the Income Tax Regulations. Sections 2.2, 2.4, and 2.6 of the Appendix to this revenue procedure deal with the election to defer compensation and the information that has to be provided to the administrator of the plan by a participant in the plan. Sections 5.2, 5.3, 5.4, 5.10 and 6.3 of the Appendix to this revenue procedure deal with the participant’s rights to distribution and the notification that the participant must give to the administrator of the plan. Section 8.6 of the Appendix to this revenue procedure deals with the procedure that an administrator of a plan must follow when distributees cannot be located. This information is required to enable sponsors of plans of state or local governments described in this revenue procedure to make the necessary amendments to ensure compliance with the statutory requirements of § 457(b) and the regulations thereunder. The likely respondents are state or local governments.
The estimated total annual reporting and/or recordkeeping burden is 41,040 hours.
The estimated annual burden per respondent/recordkeeper varies from 3 to 8 hours, depending on individual circumstances, with an estimated average of 4 hours. The estimated number of respondents and/or recordkeepers is 10,260.
The estimated frequency of responses is occasional.
Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally tax returns and tax return information are confidential, as required by 26 U.S.C. § 6103.
The principal author of this revenue procedure is Vernon S. Carter of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this revenue procedure, contact Vernon S. Carter at (202) 622-6060 (not a toll-free call).
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