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MADISON, Wis. – Most of the 457(f) plans that CUNA Mutual Group administers for credit unions will not be significantly impacted by changes to nonqualified deferred compensation plans under new legislation issued by the Joint Committee on Taxation. Under the American Jobs Creation Act of 2004 or H.R. 4520, which was passed in the House on Oct. 7 and S. 1897 passed in the Senate on Oct. 12 and is awaiting President’s Bush’s signature, several key changes to the plans are scheduled to impact deferrals starting Jan. 1, 2005. Among them, stiffer penalties to executives who withdraw money out early; requiring executives to make an earlier decision on whether they want to defer their bonuses; and making it more difficult to delay taking a payout beyond the original deferral date. CUNA Mutual’s plans will not be directly impacted because these plans are funded with only employer dollars and require lump sum payments at retirement age, said Dave Fowler, CUNA Mutual Group associate general counsel. The legislation says that if an employer does not comply with the new rules, any affected employees will be taxed on all amounts deferred to the extent these amounts are no longer subject to a substantial risk of forfeiture. Plus, there will be a flat 20% penalty and an interest penalty imposed on the amount that is taxed, Fowler explained. “It’s important to keep in mind that amounts accumulated under a 457(f) plan currently are not taxable until there is no longer a risk of forfeiture,” Fowler said. “So, even though the new rules will not necessarily change the timing of the taxation of a 457(f) benefit, it’s possible that the penalty taxes will still be imposed if the plan does not comply with the new rules.” A nonqualified deferred compensation plan is defined as any plan that provides for the deferral of compensation other than qualified employer plans, according to the IRS. For this purpose, qualified employer plans not covered by the legislation include 401(a) plans, 403(a) and 403(b) plans, 457(b) plans, 415(m) qualified governmental excess benefit arrangement, SEPs, and SIMPLE plans. Also, nonqualified deferred compensation plans do not include any bona fide vacation, sick leave, compensatory time, disability pay, or death benefit plans or arrangements. The new rules apply not only to employees, but also to directors and other independent contractors. For executives taking an early distribution, certain exceptions such as unforeseen emergencies or a change in control of the company will exempt them from having to pay a 20% penalty and interest charges. Congress has also proposed that any date change would need to be made at least a year ahead and would push the original deferral date back five years. [email protected]

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