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ORLANDO, Fla. – Credit unions could see more guidance from the IRS on 457 plans by the end of June. The guidance surrounds an April 9, 2004 private letter ruling: 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. Joe Tripalin, vice president of executive benefits for CUNA Mutual Group told Discovery Conference attendees that an announcement is expected by the end of June. If FCUs cannot offer deferred compensation plans under Section 457, industry experts contend that a logical alternative would be to let them offer deferred compensation plans under Section 451 of the Internal Revenue Code. Section 451 is the IRC provision applicable to the deferred compensation plans offered by “for-profit” employers and 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. CUNA, CUNA Mutual and NAFCU have met with the IRS over the past year on the matter.

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