WASHINGTON – Federal credit unions shouldn't expect to see any further guidance any time soon from the Internal Revenue Service on their treatment of nonqualified deferred compensation or 457(b) plans. April marked the two-year anniversary of an IRS private letter ruling which told a federal credit union that, as a federal instrumentality, it was not eligible to establish a 457(b) plan. The letter was silent on what kind of deferred compensation plan the credit union could offer. Since then, IRS officials have meet with CUNA, CUNA Mutual and NAFCU on the matter to provide broader, industry guidance. Last year, IRS gave FCUs until Dec. 31, 2006 to establish a 457 plan. Those with plans already in place, were allowed to maintain them, according to the IRS. John Tolleris, senior attorney, IRS Office of Chief Counsel, told Credit Union Times that the agency continues to work with the Department of Labor and the Pension Benefit Guaranty Corp. on defining "governmental plan," which includes a plan established by a government entity or "instrumentality," which FCUs are considered. "Certainly, not in this fiscal year, which ends September 30," Tolleris said on when more guidance might come. "Treasury, Labor Department and IRS have been working on this for a couple of years because they all have parallel definitions of `governmental plan.' " CUNA concurred, saying it hasn't heard anything further on the matter. Kathy Thompson, CUNA's senior vice president of regulatory compliance said " it's just been dead silence since IRS put out that notice last August which halted new 457 plans." Dave Fowler, assistant vice president, employee benefits compliance, for CUNA Mutual, was aware that IRS, Labor Department and Pension Benefit Guaranty Corp. were all conferring on this matter. He said he has no idea when FCUs may get any sort of resolution, but it doesn't appear that it is imminent.

The last developments for FCUs came last fall through the addition of Section 409A of the IRS code, which was mandated by the American Jobs Creation Act of 2004, and made significant changes to rules for the taxation of nonqualified deferred compensation plans. Under those rules, credit unions that maintained 457(f) plans were subject to 409A rules, although 457(b) programs are specifically exempt. Plans were allowed to be amended until Dec. 31, 2006. Fowler previously said "employers must continue to operate their plans in good faith compliance with the rules until final regulations are published."

Specifically, participant deferral elections with respect to compensation for services performed in 2006, generally were to be made on or before Dec. 31, 2005; a requirement not likely to affect many credit unions because most 457(f) plans generally involve only employer dollars and do not have employee deferrals, according to CUNA Mutual. To terminate participation in a deferred compensation plan or cancel outstanding deferral elections with regard to amounts subject to Section 409A, a participant must have also acted by Dec. 31, 2005. Fowler had also noted that participants who have made elections as to the form and timing of distributions under a deferred compensation plan may change those elections up to Dec. 31, 2006, without being subject to 409A restrictions. However, under this extension an individual cannot in 2006, change payment elections with respect to payments that would otherwise have been received in 2006, or cause payment to be made in 2006, that otherwise would have been paid later. -