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WASHINGTON – Executive compensation was front and center with the IRS this year sparked by a two-page private letter ruling that said a federal credit union could not offer a 457 deferred compensation plan to one of its executives. The April 9, 2004 letter in question went like this: the IRS responded to a FCU’s inquiry about establishing a non-qualified deferred compensation plan and whether Section 457 of the Internal Revenue Code (IRC) applied to such a plan. In its response, the IRS determined that the federal credit union was a “federal governmental instrumentality” and, therefore, is not an eligible employer. As a result, the IRS concluded that the credit union could not offer a Section 457 plan. The private ruling letter was silent about what rules would apply to the credit union’s deferred compensation plan. Plans at state-chartered credit unions are not being questioned, according to CUNA, which, along with CUNA Mutual Group representatives, met with IRS officials on Aug. 26 to determine what is needed to resolve the question of what rules apply to FCU deferred compensation programs. The IRS also met with NAFCU officials on the matter. CUNA has said that if FCUs cannot offer deferred compensation plans under Section 457, then it seems the logical alternative would be to let them offer deferred compensation plans under Section 451 of the IRC, which is applicable to the deferred compensation plans offered by “for-profit” employers. Indeed, a 451 plan provides greater flexibility than a 457 plan in that there is no annual dollar contribution limit, and participants have more flexibility in taking distributions which affects when taxes must be paid. If FCUs are not subject to Section 457, this would mean that they would be able to offer discounted mutual fund options to their employees, according to CUNA. The IRS said it hopes to have clearer guidance on the matter by June 30, 2005. Meanwhile, both CUNA and NAFCU encouraged credit unions to continue to set up 457 plans. On another notable issue, salaries for CEOs at credit unions saw some upward movement in 2004 compared to last year but senior executives at CUSOs enjoyed the highest median compensation increase, which included a bonus, for a grand total of $9,692. According to the 2004 CUES Executive Compensation Survey, CEOs’ salaries increased $4,000 to $135,000. Senior CUSO executives experienced the highest increase going from a median of $89,508 in 2003 to $99,200 in 2004. [email protected]

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